When Is the Best Time to File for Social Security?

When Ida May Fuller became the first retiree ever to receive monthly Social Security benefits, she didn’t have to think much about when her payments would start. You had to be 65 to claim recurring benefits back in 1940. There was no such thing as choosing “early retirement.” There was no financial incentive to put off filing, either. “Delayed retirement credits” didn’t exist until the 1970s.

Today, of course, deciding when to file for Social Security is much more complicated. Even if you base your decision strictly on your age (which you shouldn’t), there are several things to consider, including:

• You can start your benefits as early as 62… but there’s a catch. The sooner you claim, the less money you’ll receive each month, and your benefit amount will be permanently reduced.
• The full retirement age (FRA) has been bumped back over the past few years, and is now sometime between 66 and 67, depending on your birth year. This is when you’re entitled to receive 100% of your Social Security earnings.
• You can choose to wait even longer to file. If you do, your benefits will grow by about 8% each year you delay past your FRA, until you turn 70. There is no additional benefit increase beyond this age, so there is no reason to wait any longer than age 70.

Other Factors to Consider Besides Age

You can use calculators provided by the Social Security Administration (SSA), AARP and other websites to determine your so-called “break-even age”—the age you’d have to live to in order to come out ahead if you delay claiming your benefit.  But there are many other factors besides age to keep in mind as you make your filing decision. Here are just a few:

• Do You Need the Money? Some people—because of their employment situation, health problems, or simply the desire to enjoy their retirement now—may choose to turn on their Social Security income stream sooner rather than later. Using those reliable monthly funds to pay the bills—instead of going into debt or pulling from other sources—can make sense for many retirees. Your Octavia wealth advisor can help you look at various scenarios and develop an income plan that works for your individual needs.
• Do You Expect to Keep Working? If you haven’t yet reached your FRA, there’s a limit on how much you can earn from working while drawing Social Security. The SSA’s earnings threshold is based on your age and is adjusted annually for inflation, but if you go over the limit, your benefit could be temporarily reduced. The good news is that once you reach your FRA, you can work and earn all you want without limits—and your monthly benefit will be recalculated to give you credit for any past payments that were withheld.
• What Will the Tax Impact Be? Back in Ida May Fuller’s day, Social Security income was exempt from income taxes—but that’s no longer the case. If you have little or no income besides your Social Security, you may not owe any taxes on your benefit payments. But if you’re an individual filer with at least $25,000 in “provisional income” for the year (or $32,000 for a couple filing jointly) up to 50% of your Social Security benefits may be taxable. (Provisional income = adjusted gross income + tax-exempt interest + ½ of your Social Security benefits.) If your provisional income is $34,000 or more (or $44,000 or more as a couple), up to 85% of your benefits may be taxable. So, you’ll definitely want to look at the potential tax consequences as you plan your filing date, and your Octavia wealth advisor can help with that.
• What Is Your Marital Status? Choosing when to file for Social Security as a single person is difficult enough. But if you are or have been married, it gets even more complex, as spousal and survivors benefits become a part of the claiming decision. One of the most important factors for couples to consider is that when one spouse dies, the lower of your two payments will go away, and the surviving spouse will receive only the larger amount going forward. In households where one spouse earns significantly more than the other, the higher earner may decide to postpone claiming as long as possible to grow a larger benefit for the surviving spouse to live on.
• Do You Have a Plan for the Money? If you love your job and/or don’t really need the income Social Security can provide, you’ve likely heard that it only makes sense to wait past your FRA and until you’re 70 to file. But there also may be reasons to claim your benefits sooner. You might use the money to help a family member or charitable cause, for example. Or you could choose to use your Social Security income now in order to leave more in an IRA or insurance policy your children can inherit. These strategies also may have tax advantages that make them worth considering. Your Octavia wealth advisor can help you determine which claiming strategy might fit best with your specific goals.

Don’t Hesitate to Ask for Help

These are just a few of the things you’ll want to keep in mind as you ponder one of the most crucial decisions you’ll make as a retiree. There are many more rules that could affect the amount of your Social Security benefit… and those rules can change from year to year.

Which is why it’s so important to work with an experienced and knowledgeable financial professional who can guide you through the filing process. Schedule time now with your Octavia wealth advisor to discuss the various claiming options and how to optimize your Social Security benefits as part of your overall retirement plan.

And be sure to download our new guide to Maximizing Your Social Security Benefits­. It explains how Social Security works, how much you’re eligible to receive, and what you can do to maximize those benefits.

Sources: SSA.gov, Morningstar, U.S. News, Kiplinger.