There is a lot to consider when deciding when to take your Social Security, but let’s start off with the basics. Every year you get a statement from Social Security that tells you what your benefit will be when you retire. Full retirement age is currently 66, but forty years from now I assume it will be much higher for me. The statement will tell you the benefit is $20,000 (depending on your earnings history) when you are 66 years old.
But there are choices, so many choices to be made. If you claim Social Security early (before you are 66) you get a smaller amount. If you claim when you are 62 years old, you get 75% of the full amount which would be $15k a year in this case. If you claim at 63 it’s 80%, 64 it’s 87% and at 65 it’s 93% of the full value.
Taking your Social Security early will pay off if you are planning on getting hit by a bus at your 71st birthday party, but if you are planning to live to 100 it probably won’t work out well. Another choice is to claim the Social Security later at 67, 68, 69 or 70 years old. For every year you wait after 66, you get an additional 8%. Meaning if you wait until 70 years old, you get 132% of the full value every year for the rest of your life. $26,400 instead of $20,000 a year is a big difference and over the long haul you will come out ahead.
As with all pension and annuity and retirement decisions, if you know exactly how long you will live then the best choice is obvious. The problem is the uncertainty of life expectancy and your employment situation as you near retirement. Understanding the basics is the important way to start making these decisions. Future posts will dive into some more complicated scenarios and important wrinkles to the Social Security system.
That’s great, but here’s where it gets really interesting. A spouse can claim the 50% spousal benefit at age 66 but then switch over to their own benefit when they reach age 70. By waiting until age 70 to claim their own benefit, the spouse can get 132% of the full value starting at age 70. In the meantime, from age 66 to 70 the spouse can claim their spousal benefit. Whoa, did I just blow your mind? I know it blew my mind when I first discovered that was a possibility.