As workers begin to anticipate retirement, the prevailing question is: "When should I start taking Social Security?" The answer is more complicated than many people realize.
The first step towards deciding when to start taking benefits is knowing your assets and anticipated expenses in retirement, experts said. For those who can manage their living expenses otherwise after reaching age 62, the earliest qualifying age to receive Social Security, it behooves them to wait, said Chrisanna Elser, financial planning quality assurance specialist at BOK Financial®.
Full retirement age occurs at 67, and waiting even longer than that to take Social Security is rewarded with an 8% annual bump in benefits for the three-year delay through age 70. That's about a 25% monthly gain over your or your spouse's lifetime, should they receive a survivor's benefit.
Know what you could receive
It's also important to keep in mind that more than one factor will determine your monthly Social Security benefit. You can learn what your annual benefit would be beginning at age 62 by visiting www.ssa.gov and creating an online account if you haven't already done so. You may want to recheck your account annually, as late-career earnings can impact your benefit amount.
When to Start Receiving Retirement Benefits 2021 (ssa.gov)
Plus, there are factors that will impact your monthly Social Security benefit, regardless of when you started working. They include:
- Your earnings. The more you earn, the better your benefit.
- Earnings over time. Benefits are based on the average of your highest 35 earning years. Understand that years of zero earnings will reduce that average.
- Years of marriage. Marriages of at least 10 years qualify for spousal or survivor's benefits in the event of divorce or spousal death. A lower-earning spouse can claim a benefit based on their ex-spouse's benefit amount.
- Consistently filing your taxes. Earnings reported on your federal tax form 1040 feed the average earnings that determine your benefit. Unreported earnings from hobbies or side hustles are not a part of your Social Security benefit calculation.
Talking to an expert will help you get your ducks in a row. "To figure out what's best for each individual, we want to see a full financial plan because there are so many variables such as your life expectancy, your health and your other assets," said Elser.
For many people, if not most, stopping work and collecting Social Security benefits goes hand in hand. However, there are exceptions that can make Social Security a gray-area.
For example, many people are now working beyond traditional retirement ages and potentially compromising their retirement benefits. If you're still working in retirement, it's important to know the maximum amount you can earn before those earnings reduce your monthly Social Security.
Meanwhile, some people initiate benefits and then "life happens" and they want to suspend their benefits. In this case, it's important to know the rules around suspending benefits. Once you've reached full retirement age, you can request to suspend benefits payments until 70, resulting in higher benefit payments later.
Finally, whether you're initiating or resuming your benefits, confirm your contact information with the Social Security Administration. Review your date of birth, as well as your citizenship or immigration status on your Social Security record. And be sure to verify your banking and mailing address, as many recipients relocate during retirement.
Deciding when to start taking Social Security—which was envisioned as supplemental, not substitute, income—is one of the most consequential financial decisions some people will make, Elser said. By considering all the variables, recipients can choose wisely for a potentially decades-long retirement.
What to do before initiating Social Security benefits
- Know your assets and anticipated expenses in retirement.
- Open your online Social Security account on www.ssa.gov and confirm your contact information.
- Identify your annual benefit beginning at age 67.
- Know the maximum earning limits in retirement.
- Understand the benefits of waiting to begin benefits.
- Review rules around suspending benefits.
- Meet with your financial advisor to review your options and optimize your benefits.
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