Social Security benefits are an essential part of many retirees’ budgets. In fact, 37% of male beneficiaries and 42% of female beneficiaries relied on these government payments for more than half their income in 2021.
“This is a guaranteed pension that you’re going to get for the rest of your life,” says Dwain Phelps, founder and CEO of Phelps Financial Group in Kennesaw, Georgia.
When you start claiming Social Security benefits makes a significant difference in how much you receive. If you were born in 1960 or later and start at the earliest age, 62, you’ll bring home 30% less per month in exchange for extra years of benefits. Wait, and your monthly amount will get an 8% boost for every year past your full retirement age, until you reach age 70.
“There isn’t a right answer,” Phelps says about when people should start benefits. However, the following tips will help ensure you are making the best decision possible.
1. Check your Social Security statement
First things first: you want to be sure the Social Security Administration has accurate information about your employment history. Benefits are based on your 35 years with the highest earnings. Plus, you need to have 40 Social Security credits — the equivalent of 10 working years — to be eligible.
Fortunately, the Social Security Administration makes it easy to check both your earnings history and credit status. Create a Social Security account, and you’ll be able to review annual statements there.
“Throughout your planning, periodically review your Social Security statement,” says Karen Birr, manager of Advanced & Retirement Consulting at Thrivent, a financial services organization. “This will help you see if you’re on track to earn enough credits to retire.”
2. Consider your health and family history
There are a number of factors — from your finances to your lifestyle — that could influence when you begin Social Security retirement benefits. Perhaps the most important is longevity — in other words, how long you expect to live.
The Social Security Administration has an online life expectancy calculator, but it may be more accurate to consider your own health and that of your parents and other older relatives.
“At 55, you should start considering these things,” Phelps tells Money Talks News. If you have chronic conditions and a family history of premature death, that may be a sign to begin benefits early.
On the other hand, time may be on your side. “If you are in good health and have a family history of longevity, it might be beneficial to wait to retire to guarantee the maximum benefit,” Birr tells Money Talks News.
3. Decide when to stop working
The start of Social Security benefits doesn’t always coincide with leaving the workforce. Some people may begin Social Security early but keep working, while others quit their jobs but wait to start benefits. There can be tax ramifications to your decision (more on that next), so choose wisely.
Also, if you look at your Social Security statement and are disappointed by the anticipated benefit amount, you could still increase your payout.
“The only way you can do that is by working more,” Phelps says.
You’ll want to earn enough to bump some low-paying years out of the Social Security Administration’s formula, so picking up overtime hours or starting a side gig are two avenues to pursue before you stop working.
4. Plan for taxes
Taxes are an often-overlooked part of retirement planning, Phelps says. However, they can weigh heavily on your decision regarding when to claim Social Security benefits. For instance, if you plan to keep working but take your Social Security benefits early, you could end up with an unpleasant surprise at tax time.
“I would really advise people in their mid-50s to talk to a financial professional,” Phelps says. An expert can help you sort through this and other tax issues, such as which retirement accounts to use first for income.
5. Create an income strategy
Just as you need to have a tax plan for retirement, you need to have an income strategy. This is a plan that will estimate how much money you’ll need in retirement and where it will come from.
If you have sufficient income from other retirement accounts, you may be able to comfortably delay the start of Social Security benefits. If you’re living on a shoestring, on the other hand, you may have no choice but to claim early.
“As you think about claiming benefits, remember to keep your retirement plan flexible so there’s room to make adjustments later,” Birr says. “Given the current inflationary environment, for example, it’s important to think about how that could affect your planned income sources, including Social Security.”
6. Know your spousal or survivor benefits
If you are married — or have ever been — don’t forget to consider your spousal or survivor benefits. Even divorced people may be entitled to benefits from their former spouse’s account so long as they were married for 10 years and have not remarried. Widows and widowers are also eligible for early benefits.
“For example, a widow or widower at 60 could collect a survivor benefit and allow their own Social Security to grow until age 70 and then decide to retire and start collecting their own benefit,” Birr says.
Like other aspects of retirement planning, talking to a financial professional is the best way to get personalized advice and sort out what you’re eligible for and when. You can also get a personalized analysis of different Social Security claiming strategies.
7. Keep saving money
Claiming Social Security early isn’t right for everyone, but some people find they have no choice but to start benefits at age 62. They simply may not be able to pay the bills otherwise.
“One of the biggest mistakes people make is that they don’t save [enough] to give them options for when to take Social Security,” Phelps says.
If you haven’t claimed Social Security benefits yet, keep socking away cash in your retirement accounts. The more you have saved, the more likely you’ll be able to start Social Security on your own terms.
For more on how to do that, check out: “7 Fast Ways to Catch Up on Retirement Savings.”