In some ways, it would probably make seniors’ lives easier if Social Security were to just enroll people automatically upon reaching a certain age. In that scenario, seniors would lose the opportunity to boost their benefits with delayed claims. But it would also mean they wouldn’t have to rack their brains trying to figure out when to sign up for benefits.
If you’re trying to figure out when to claim Social Security, your head might be spinning. If you wait until full retirement age, you’ll get your benefits without a reduction. If you delay beyond that point, you’ll get a boost. If you file early, you’ll shrink your benefits for life. So it’s a tough call for sure.
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But a few key questions could help make that decision easier. Here are three to be asking yourself.
1. Do I want to continue working?
Some people don’t have the option to continue working once they reach a certain age. Either their health declines or they end up downsized out of a job.
If you’re able to keep working, the next question to ask yourself is whether you want to. It may be that you like your job and colleagues but you’re burned out and feel physically and mentally exhausted. Or, it may be that you don’t like your job, period.
If stopping work is a priority for you, that could make the case to sign up for Social Security on the early side as long as you have enough savings to make up for reduced benefits. On the other hand, if you intend to keep working, it could pay to wait on Social Security since you conceivably don’t need the money.
You never know what financial needs might arise later in life. If you wait on Social Security and boost your monthly checks in the process, you might be very grateful for it down the line.
2. How much income will my savings provide?
It’s hard to make a sound decision on Social Security without understanding your income needs. Try to come up with a retirement budget so you know how much monthly income is optimal. And then, see how much income your savings will provide.
If you’ve got $800,000 socked away for retirement and you decide to use the 4% rule to manage your nest egg, you’ll have $32,000 a year from your portfolio to live on (not including adjustments for inflation, which the 4% rule allows for). If you think you’ll need $60,000 a year to cover your expenses, you’ll need Social Security to pay you $28,000 annually.
If you’re eligible for a monthly benefit of $2,000 at full retirement age, that should tell you that filing early is not a wise move. It should also tell you that delaying your claim for two beyond full retirement age probably makes sense, since that raises your annual Social Security income to about $28,000, which is the amount needed to supplement withdrawals from savings.
3. Do I have a spouse I need to take care of?
The amount of money Social Security pays you each month won’t just affect your finances. It could also impact your spouse’s. Once you pass away, your spouse will be eligible for survivor benefits from Social Security, which are payable in the same amount you got to collect.
So let’s say you decide to claim Social Security early and reduce a $2,000 monthly benefit to $1,600. That’s the amount of money your spouse will get in the form of survivor benefits. If you wait until full retirement age to lock in $2,000 monthly checks, your spouse’s survivor benefits will be that much higher.
It pays to consider waiting on Social Security if you expect your spouse to outlive you by many years and you don’t have a huge amount of savings to fall back on. Even if delaying Social Security doesn’t give you more money in your lifetime, it might give your spouse more money in theirs.
The decision to claim Social Security is clearly huge. With any luck, these questions will help you come to a choice you’re confident in.
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