A worker qualifies for Social Security benefits once they have worked for 40 quarters, typically 10 years of employment and is calculated using 35 years of earnings. The benefits come with crucial decisions that can drastically affect the quality of your retirement. The key question: when should you start taking Social Security retirement benefits? Consider all aspects of your family’s financial circumstances and your retirement planning prior to make any final decisions. Be sure to discuss with your spouse and a financial planner.
Numerous factors affect when you should start taking Social Security. Some questions to help your planning would include:
1. How long will you live (your family medical history)?
2. How long will your spouse live (their family history)?
3. What is your income, and/or your spouse’s income?
4. Do you plan to keep working?
5. Does your spouse work or plan to keep working?
While you can claim Social Security any time between the ages of 62 and 70, the Social Security Administration defines Full Retirement Age (FRA) between the ages of 65 and 67 depending on your year of birth. For example, the FRA for anyone born in 1960 or later is 67. This creates three choices for claiming Social Security which are to take it early, at, or after your FRA. The maximum benefit amounts for these scenarios in 2020 are $2,265 per month for retirement at 62, $3,011 for FRA (currently 66) and $3,790 for retirement at age 70.
As you can see, claiming Social Security benefits before your FRA will permanently reduce your benefits by 6.67% per year. Delaying retirement after your FRA will increase your benefit by 8% per year. Your family’s financial situation will determine if it makes sense to delay, or to take the benefit earlier at age 62. While conducting your financial planning, remember that at your death, your spouse is eligible to receive 50% of your benefits if they are also at normal retirement age and you have been married for more than 10 years. If you haven’t already, we recommend you create an account with the Social Security Administration so you can review your work history, check your projected benefit amount and confirm what constitutes “normal retirement age” for you.
Keep in mind that social security benefits are subject to federal income tax. State income tax regulations for social security vary state by state, so be sure to look up the regulations for the state where you plan to reside in retirement. Most actuaries predict a 25% reduction in benefits for everyone starting their claim in or after 2037, so if you are under age 50 right now, this prediction probably affects you.
Retirement planning is not “one size fits all.” Different financial situations call for different solutions. By answering the questions above and knowing what your social security benefits are, you and your spouse can start to make informed decisions on funding your retirement and aging in place. Speak with a financial advisor before making any major decisions regarding your social security benefits.