Eager to claim your Social Security? I get it. You paid your Social Security taxes for decades, and now you're ready to collect what's owed to you. Still, filing for Social Security benefits isn't something to do impulsively or without research. Moving too fast can result in income that's lower than you want. It can also take away your flexibility to manage your household's total Social Security income strategically.
Go ahead and get excited about claiming Social Security soon. But also give yourself a few minutes to answer these four questions before you file your benefits application. That way, you can be confident that now really is the right time to claim.
1. What's my FRA?
FRA, or full retirement age, is the age you qualify for your full Social Security benefit as calculated from your wage history. Social Security assigns your FRA based on the year you were born. You can see these assignments, and find your own FRA, in the table below.
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66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 and later
You don't have to wait until your FRA to start receiving benefits. You can claim Social Security as early as age 62 or as late as age 70. Doing so will result in an adjustment to your full benefit amount, however. When you claim prior to FRA, your benefit is reduced by up to 30%. Claim after your FRA, and your benefit is increased by up to 32%.
The adjustments, up or down, are calculated from the number of months between your claiming date and your FRA. That's why you'll see a smaller change in your benefit amount by claiming closer to your FRA and a larger change by claiming very early or very late.
2. Is my earnings record accurate?
Your Social Security benefit is calculated from your earnings record, which comes from employer reporting. The benefit formula averages your highest-paid 35 years. (If you have fewer than 35 years of wage history, the missing years are included with zero income.)
If the data in your earnings record is incomplete or inaccurate, your average will be skewed. That could lead to a calculated benefit that's less than what you're entitled to.
Fortunately, you can easily review your wage history online. Also, Social Security has a process in place for correcting any mistakes.
To access your earnings record, create an account at "my Social Security." Log in and you'll find lots of useful information, including a link to review your full earnings record. What you'll see there is a list of years and the associated taxed Social Security and Medicare earnings.
If your data doesn't look right, gather any documentation you have of the correct information. Ideally, you'll have one or more W-2 forms, tax returns, or wage slips. Otherwise, jot down contact information for the employer who paid the earnings in question, along with the dates you worked there and how much you made. Then, contact Social Security and ask about correcting your record.
3. How much more can I earn by claiming later?
The later you start receiving Social Security, the higher your benefit will be. There are formulas that drive these changes, but you don't really need to know the math to understand its impact. You can estimate your benefit at any age in the my Social Security portal. Test different claiming ages and you'll see that delaying your benefits increases your Social Security income.
There is a cost to waiting, however. A three-year delay to your benefit claim can raise your income by 20%, but you must forgo three years of income upfront. To put that to numbers, you could increase a $1,300 monthly check to $1,560. Your upfront cost would be the income you didn't receive by waiting three years -- which totals $46,800, or 36 months multiplied by $1,300.
You can evaluate this trade-off in terms of a breakeven point. In this scenario, how long would it take for your higher benefit to make up the upfront cost? If the benefit is $260 higher each month, you'd cover the $46,800 in 180 months or 15 years. That might make sense if you plan to live to 90 but not if you expect a much shorter lifespan.
4. What's my spouse's plan for Social Security?
If you are married, the two of you should collaborate on timing your retirement benefits claims. Your freedom to be strategic about timing rests on whether you both qualify for benefits on your own wage history. If you do, one of you could claim early for current income, and the other could delay claiming to support future income.
You'll have less flexibility if one of you will collect spousal benefits based on the other's wage history. Usually, the primary income earner must start receiving benefits before the spousal benefit is available. (There is an exception for those caring for a child under the age of 16 or disabled.)
Also, spousal benefits are reduced when claimed before FRA, but they are not increased for claiming after FRA. Given that delaying the primary income earner's benefits also delays the spousal benefits, waiting past FRA to claim may be harder to justify. You'd delay two incomes, but only the primary income earner will see higher income later.
Managing Social Security today and tomorrow
You worked for years to earn your Social Security benefit. And now, you can optimize that benefit in far less time by understanding how timing affects your income, verifying the accuracy of your wage history, and planning strategically with your spouse.
Your Social Security income will be with you for the rest of your life. A few easy action items now to get it right will be well worth the effort.
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