When Should I Start Collecting Social Security?

When it comes to your retirement, when to start collecting your Social Security benefits will likely be one of the most important decisions you make. A common refrain I hear is that there are only 3 times you can start Social Security — 62, 66 + “X” months (full retirement age), and 70. But this couldn’t be further from the truth. There are, in fact, 96 different dates you can begin collecting your benefits, and today I am going to cover the 7 factors you should consider when picking your date.

How to Plan Your Social Security: Seven Factors
How to Plan Your Social Security: Seven Factors

Many retirees feel the pressure to take Social Security immediately, or delay it for proposed maximum benefits. Taking your check at the right time can mean the difference between tens of thousands of dollars during your lifetime in benefits.

Social Security Benefits: A Quick Refresher

As I’m sure you all know, the first of these 96 dates is when you turn 62. This is the earliest you can begin collecting Social Security. It is also the age at which you will receive the lowest benefit amount.

Something you may not know, however, is that you can begin collecting your Social Security benefit any month after you turn 62 until you turn 70. This means that you can really customize when to file to best suit your particular needs and circumstances.

Once you begin collecting your benefits, that decision will stick with you for the rest of your life, which is why it’s so important to be as fully informed as possible. Many folks make this decision based on only one or two factors. Perhaps you decided based on what your brother, friend, or neighbor did. Maybe this worked out well for them — and maybe not.

The key thing here is that everyone’s situation is different, which is why I will encourage you to consider these 7 factors when ultimately deciding when to begin collecting your benefits:

1. Age: Month + Year to Start (96 dates)

It’s been my experience that most folks don’t realize there is so much flexibility around when you can start Social Security. This alone can be a game-changer when it comes to your retirement plans.

Maybe you and your spouse want to retire at the same time, and you need the Social Security income to replace your lost wages right away. Even if you and your spouse are of different ages (like most couples), aligning your start dates is no problem. You and your spouse can start Social Security at any time after turning 62.

This also means that you don’t have to build your retirement plans around those 3 dates of age 62, FRA, and age 70. If you don’t want to take Social Security at age 62, you don’t then have to wait all the way until your FRA (which we’ll discuss more below) to start receiving your benefits. For every month you wait, your benefit increases a little more until you reach age 70.

2. FRA: Full Retirement Age

Full retirement age (FRA) is often one of the 3 key dates cited when discussing when to start Social Security benefits. It is the age at which you are entitled to your full Social Security benefits. When Social Security was first introduced, FRA was 65; this was raised in the 1980s in response to increased life expectancies. What this age is for you depends on the year in which you were born.

FRA is undoubtedly one of the biggest factors when deciding when to begin Social Security. Before this age, you receive reduced benefits; after this age you receive extra. Additionally, you will face income limits if taking Social Security before reaching your FRA.

For the year 2021, you can earn up to $18,960 without affecting your benefit amount. After that, $1 will be deducted from your benefit for every $2 you earn. In the year you will reach FRA, this deduction changes to $1 for every $3 you earn over $50,520. After you’ve reached FRA, no further deductions are taken from your benefit.

For those of you who plan on working past your FRA, you may want to wait to collect Social Security. After you’ve reached FRA, you can work as much as you want without losing any of your benefit. So not only will you avoid income limits and deductions, but your benefits will continue to increase after you’ve passed your FRA until 70.

3. Spousal Benefits

If you are married, you or your spouse may be entitled to spousal benefits. This is also true if you are divorced or widowed. We previously covered spousal benefits and eligibility in an earlier blog, which you can read here.

For couples whose earnings histories are quite different, spousal benefits provide a healthy boost to what might otherwise be a meager benefit. Many couples may have only one primary earner with a substantial earnings history; perhaps their spouse raised the children instead of focusing on a career.

The spouse for whom a career was not the focus may have an earnings history of only a few years early on or some part-time work here and there. To compensate for a lack of an earnings history, this spouse may want to file for spousal benefits instead of filing against their own earnings.

You or your spouse may be eligible for up to 50% of the primary earner’s benefit if filing for spousal benefits. This means that for the individual with the stronger work history receives $3,000 in benefits per month, their spouse could receive up to $1,500/month in spousal benefits.

There are many factors to be considered when deciding to collect the spousal benefit. Spousal benefits can only be claimed if the primary earner has filed to receive their own benefits (unless you are divorced or widowed). So planning to claim the spousal benefit may impact when you both ultimately file for Social Security benefits — should you file earlier given the “bonus” benefit or wait to maximize your total benefits? You’ll want to know all your options before you file.

Listen to learn more about the seven factors to consider before starting Social Security:

4. Retirement Date

For many folks, the date they retire and the date they file for SS are one in the same. But this doesn’t have to be the case.

Perhaps you plan to file early so your spouse can collect spousal benefits. This doesn’t mean you have to retire early too. While there are some tax implications you’ll want to consider — a topic we’ll discuss in more detail later — you don’t have to retire once you file for Social Security nor do you have to file once you retire.

5. Needed/Desired Income

Needing your Social Security benefits to provide for a basic income is, for me, an overriding factor in this consideration. If your basic needs will not be met if you do not file for and collect your Social Security benefits, then that is the only factor you need to consider.

Desired income is another matter. When planning for retirement, you should figure out just how much per month you will wanting income. Part of this calculation will include your Social Security check. If you have other sources of income — e.g., annuities, pension, IRA, 401(k), etc. — you will need to ascertain how much in Social Security benefits you will need to meet this goal.

If your desired income is high and you’re relying on your Social Security benefits to meet it, that may mean a later filing date for you. If not, maybe another factor we’ve discussed will dictate a different start date.

6. Life Expectancy

Life expectancy is a frequently overlooked factor. Once you start receiving your Social Security benefit, that amount is locked in for the rest of your life. If you and your spouse are healthy and expect to live a long time, waiting to receive a bigger check may make the most sense. Maybe you aren’t in the greatest health but your spouse is. If they will be relying on your benefit to provide the bulk of their income, you might prioritize maximizing their expected widow’s benefit amount over collecting it earlier.

Conversely, if you are in bad health and do not expect to live as long, you could file early and hopefully enjoy your retirement as long as you can with the benefit you earned.

7. Other Yearly Taxable Income

At its base, social security is not taxed. If you receive no other income, you will pay no taxes on your benefits.

If your combined income is above $25,000 as an individual or $32,000 as a married couple filing jointly, you will have to pay taxes on your Social Security benefits. How much of your benefits will be taxed depends on your income level.

There are other sources of income that are not taxed themselves and do not cause your Social Security benefits to be taxed. These can include a Roth IRA or life insurance, from which you can make tax-free withdrawals that do not count towards taxable income for your Social Security benefits.

There are many things to consider when deciding when to file for Social Security. With these 7 factors, however, you can narrow down the window to optimize your benefits. To learn more about how each of these factors relate to your Social Security benefits, click here.

Feeling overwhelmed by the decision? Give Cardinal a call and we can help walk you through the process so you can make the most of your benefits.

Have questions? Contact us today.