People usually fall into one of two camps when it comes to starting Social Security. Either they’re signing up the second they blow out the candles on their 62nd birthday cake or they’re patiently waiting until they turn 70 when they qualify for the largest possible benefit. Neither approach is wrong, although one might give you more money than the other depending on how long you expect to live.
Of course, we can never know that for sure, so we’ll never know if we’re making the best possible choice. There is a third option many people don’t think about that serves as a middle ground — claiming at their full retirement age (FRA). This is age 66 for people born between 1943 and 1954. Then, it rises by two months every year thereafter until it reaches age 67 for all adults born in 1960 or later. Here are a few reasons you might want to wait until your FRA to start claiming your Social Security benefits.
1. You won’t cost yourself benefits
Starting Social Security benefits before your FRA gives you more checks, but you get less money per check. That could mean less money overall, depending on how long you live. Beginning at age 62 means you’ll only get 70% of your scheduled benefit per check if your FRA is 67, or 75% if your FRA is 66.
To illustrate what kind of a difference this can make, let’s consider a $1,000 benefit that you start claiming at your FRA of 67 and receive it for 20 years. Over your lifetime, that adds up to $240,000 in benefits ($1,000 x 240 months = $240,000). If you began claiming at 62, you’d get an extra five years of checks, but you’d only get $700 per check. That adds up to a lifetime benefit of $210,000 ($700 x 300 months = $210,000), and the difference would be more significant if you were entitled to a larger monthly benefit or claimed benefits for more years.
2. You’ll have to wait, but not too long
Waiting until 70 to claim benefits will get you the most money per check. At this age, you’re eligible for 124% of your scheduled benefit per check if your FRA is 67 or 132% if your FRA is 66. But waiting that long can be difficult, especially if you don’t have a large nest egg to cover your expenses on your own. It’s also a bit of a gamble because if you wait to claim benefits and you end up dying earlier than you expected, you may not get any Social Security benefits at all.
Claiming benefits at your FRA is a good middle ground if you’re worried about this. You will have to wait a little while and either continue working or live off of your personal retirement savings until you reach your FRA, but you won’t have to wait quite as long as if you were going for your maximum benefit at 70.
3. The Social Security Administration won’t dock your checks if you’re still working
You can work and claim Social Security benefits at the same time while you’re under your FRA, but then your benefits are subject to the Social Security Earnings Test. Those who are under their FRA for all of 2020 will lose $1 from their Social Security checks for every $2 they earn over $18,240. Those reaching their FRA in 2020 will lose $1 from their Social Security checks for every $3 they earn over $48,600 if they hit this amount before their birthday. This money isn’t lost forever, though. When you reach your FRA, the Social Security Administration recalculates your benefits to account for the money it withheld and it will send you larger checks going forward.
If all this sounds too complicated to you and you anticipate earning more than the limits above this year, you’re better off waiting to claim until your FRA. Once you reach this age, you can earn as much as you want and the Social Security Administration won’t withhold any money from your Social Security checks, though your benefits could be subject to federal and possibly state taxes.
You don’t have to claim benefits at your FRA, age 62, or age 70. You can start at any age in between. But weighing the pros and the cons of these three ages can help you begin to figure out which time frame is best for you. If any of the three reasons above appeal to you, consider delaying your benefits until your FRA.
