Retirees become eligible to claim benefits at age 62, but the timing of when you claim can drastically impact your benefit amount.

This leaves many to wonder, “When’s the most appropriate time to claim Social Security?”

The truth is, there’s no one-size-fits-all answer. You need to weigh the available options against your own unique set of financial needs and circumstances.

The good news? Educating yourself and seeking professional guidance can help you make an informed decision that you feel confident about.

Identifying Your Expected Benefit

The Social Security Administration (SSA) provides statements detailing your expected monthly retirement benefit if you were to claim at full retirement age (FRA), age 62 or age 70. The statements also include other estimated benefits, your earnings record and additional key facts.

How Your Benefit is Calculated

Your benefits are based on your top 35 years of earnings, adjusted to account for changes in wages from the year they were earned. The SSA then applies a formula to those figures to arrive at your specific benefit amount at FRA, also referred to as your primary insurance amount (PIA). 

Pros and Cons of When to Claim Your Benefit

There are three options for when to claim your benefits – Claim early, claim at your FRA, or claim at age 70. Each comes with its own benefits and risks. One important concept to understand before evaluating the right time for you to claim Social Security benefits is your break-even point. The break-even point is the point at which the increased benefit amount from waiting to claim Social Security meets the cumulative amount collected by claiming Social Security early. For most people that intersection happens in their late 70s or early 80s.

Claim at age 62

You can begin claiming your benefits as early as age 62, but your benefits will be permanently reduced. For example, for those born between 1943 and 1954, claiming at age 62 results in an approximately 25% reduction in your benefit versus claiming at your FRA of 66.

If you claim your benefit at the earliest possible eligibility, you stand to miss out on significant potential benefit versus waiting until your FRA or even age 70. But there are instances where claiming early makes the most financial or personal sense:

  • You’re in poor health – The short-term benefit of receiving Social Security early may be worth it particularly if you’re unsure if you’ll live beyond your break-even point;
  • You’re maximizing benefits with a spouse – If you’re married, timing your claim to Social Security with your spouse can help you maximize a long-term benefit, while fulfilling cash flow needs in the present. For instance, the lower-earning spouse may claim an early benefit while the higher-earning spouse delays, thus preserving the maximum future benefit of the higher-earner, while receiving the lower-earning spouse’s benefit early;
  • You no longer want to work – For some, the lifestyle benefits of leaving the workforce may outweigh a larger future financial benefit from Social Security;
  • You want to preserve assets with growth potential – If you’re not ready to dip into your retirement savings, or want to give your portfolio a bit more time to grow, claiming an early Social Security benefit may buy you some time; or
  • You can’t afford not to – For some, claiming an early Social Security benefit is necessary for everyday living expenses.

Claim at your full retirement age 

The primary benefit of waiting until your FRA is that you are then entitled to 100% of your benefits, without possibility of reductions over time. Your full retirement age for purposes of Social Security is based on the year you were born.

Birth Year

FRA

1943-1954

66

1955-1959

66 + 2 months for every year after 1954 until 1960

1960 and later

67


Delay your claim to age 70

You can delay claiming your benefits until the maximum age 70 with the primary advantage of increasing your benefits for the remainder of your life. For example, for those born between 1943 and 1954, claiming at age 70 results in an additional 8% delayed retirement credit each year, or in total, a 32% increase in your benefit versus claiming at your FRA of 66.

In addition to the possibility of an increased annual benefit, delaying your claim to Social Security can lead to a larger long-term benefit over time. Delaying a Social Security claim may make sense if:

  • You have other forms of income to draw from – You may realize tax benefits from pulling from other income sources such as retirement accounts or savings, delaying your need for Social Security income;
  • You’re still working – Working beyond your FRA may allow you to meet lifestyle expenses while increasing your future benefit; or
  • You’re concerned about spousal or survivor benefits – When you delay claiming your Social Security, your spouse may be entitled to a larger spousal benefit and/or survivor’s benefit as well. 

Further, cost-of-living-adjustments (COLA) begin giving your potential benefit a boost at age 62 - and that boost will continue to compound every year you delay making your claim. 

It’s important to note that the changing benefit amounts are not designed to punish or reward. Rather, SSA’s actuaries try to set benefits so that if you live out your life expectancy precisely, you’ll receive approximately the same amount from the program whether you start receiving your benefits at age 62, age 70, or anywhere in between.

Impact on Taxes and Medicare

As you determine your strategy for claiming Social Security, it’s important to factor in how that income will affect your taxes and health insurance costs. Generally, your Social Security income will be tax dependent on your “combined income,” which factors in gross income, nontaxable interest earned, and half of your Social Security income. Depending on that combined income, your Social Security income will be taxed at:

  • 0% if your combined income is $25,000 or less ($32,000 married filing jointly);
  • Up to 50% if your income is between $25,000 and $34,000 (or between $32,000 and $44,000 if filing jointly); and
  • Up to 85% if your combined income is more than $34,000 ($44,000 if filing jointly.)

Your Medicare premiums may similarly be affected based on your income – including Social Security income – based on the Income-Related Monthly Adjustment Amount (IRMAA). That surcharge is calculated using your modified adjusted gross income (MAGI) from two years prior. While the surcharge will mostly impact higher-income earners in retirement, timing the claim of your Social Security benefits relative to your other investments is an important consideration for minimizing impact to your Medicare premiums.

Contact Us Today

A PNC Wealth Management Financial Advisor can help you navigate the decisions leading up to retirement and create a personalized retirement income plan for you. Call 855-762-4683 or stop by a local branch.