In one sense, Social Security is automatic. You qualify for benefits through working and paying taxes, and when it’s time to retire, the Social Security Administration tells you the size of your benefit.
However, treating Social Security passively like this means you aren’t likely going to maximize your benefits. By taking a few key factors into consideration, you can help boost your payout when you retire — or at least optimize it for the lifestyle you lead. Here are the most important things to consider before you claim benefits.
Your age is one of the two single largest factors affecting the size of your Social Security benefit. Although you can file for Social Security retirement benefits as early as age 62, the longer you can hold out to take your benefits, the higher they will be — at least, until age 70. For those born in 1960 and later, “full retirement age,” or the age at which you receive your standard benefit, is 67. For each year between 67 and 70 that you delay filing, your benefit jumps by 8% per year, or 24% if you wait the full three years. Claiming as early as 62, on the other hand, can reduce your benefit by as much as 30%.
Your Earnings Record
Coupled with your age, your earnings record is one of the primary determinants of the size of your Social Security retirement benefit. Although you qualify for benefits with just 40 “quarters of credit” — or effectively 10 years of work — the amount of your payout is based on your highest 35 years of earnings. If you’re thinking of retiring but have only worked for 30 years, for example, you’ll be short-changing your benefit for the rest of your life. If there’s a way for you to put in the time and reach a full 35 years of earnings, you’ll be able to secure a higher benefit.
In a perfect world, everyone would wait to claim their Social Security benefits at age 70, when they are at their highest. But the reality is that a number of real-world factors might push you to draw your benefits earlier. Your health is a big part of this. If your family history — or even your own personal health record — suggests that longevity might not be in the cards for you, it can make sense to grab your retirement benefits as early as possible. On the other hand, if you pride yourself on keeping fit and everyone on your side of the family has lived past 100, you could end up with a considerably higher lifetime payout if you do wait until age 70. Remember, your Social Security retirement benefits continue until you die, even if you live an outsized lifespan.
Your Other Sources of Income
If you’ve got ongoing sources of income — such as investment income or a part-time job — it might make sense to push your benefit until age 70, or at least age 67. Since you may not be needing your Social Security to live off, deferring your claim and letting your benefit grow may make sense. If you’re approaching age 62 and Social Security will be your only source of income, however, you may not have any other choice but to file for benefits early.
Generally speaking, the spouse of a Social Security beneficiary is entitled to 50% of the primary recipient’s payout upon reaching full retirement age. If you file for benefits early and permanently reduce your own payout, you’ll be dropping your spouse’s potential payout as well. But the converse is true as well — if you wait until full retirement age to claim your own benefit, you’ll be boosting your spouse’s payout as well. One important thing to note, however, is that your spouse’s benefit can never exceed 50% of your benefit at full retirement age, even if you wait to file until age 70 and receive an enhanced payout for yourself.
Your Tax Situation
For some Americans, Social Security retirement benefits are nontaxable. However, once your total earnings exceed a certain threshold, they become at least 50% taxable, and potentially as much as 85% taxable. This is another reason that your outside income may affect the timing of your Social Security claim. If you have ongoing income that will drop off at age 67 or 70, you may be able to avoid taxation on those benefits if you wait to file until those ages.
Clearly, there are many variables that go into claiming Social Security benefits. In addition to doing your own due diligence and planning, it’s often helpful to speak with a financial advisor and/or tax specialist before you make your big decision.
In one way, Social Security is automatic. You can qualify for benefits by working and paying tax, and when the time comes to retire you will be notified by the Social Security Administration tells you how much you’ll receive.
However, taking Social Security passively like this isn’t going to allow you maximize the benefits you receive. By taking a few important aspects into account and adjusting them accordingly, you can increase the amount you receive when you retire — or, at the very minimum, make it more suitable for your lifestyle. These are the top aspects to think about prior to claiming benefits.
Your age is among the most significant variables that affect the amount that you receive in your Social Security benefit. Even though you are eligible to claim Social Security retirement benefits as young as 62 however, the longer you keep waiting to collect your benefits, the more they’ll be — at the very least until the age of 70. If you were born in 1960 and beyond, “full retirement age,” or the date that you are eligible for the standard benefits is the age of 67. For every year that falls between 70 and 67, if you don’t file your claim the application, your benefits increase by 8% each year which is 24% if waiting all three years. Claim as early as 62 in contrast could reduce your benefits by up to 30 percent.
Your Earnings Record
In conjunction with your years of age, your earnings record is among the main elements that determine the size of the Social Security retirement benefit. While you can be eligible for benefits only with forty “quarters of credit” -that’s roughly 10 years of employment the amount you’ll receive is based on the top earning years, which is 35. If you’re planning to retire but you’ve only been working over 30 years as an instance, you’ll forfeit your benefits for the remainder all of life. If there’s a way to allow you to invest the effort and earn the full 35 years of earning and you’ll get a better reward.
If everything were perfect everyone would be waiting to claim the benefits of Social Security benefits at age 70, which is when they’re at their most. But in reality, many real-world events could cause you to take your Social Security benefits earlier. Your health is a major component of this. If your family’s historyor even your own personal health history suggests that long-term health may not be a possibility in your case, it may be beneficial to take advantage of your retirement benefits as soon as is possible. However it is if you are adamant in being fit and healthy, and no one in your family has reached 100, you may get a greater lifetime benefit if you decide to wait until the age of 70. Keep in mind that it is a fact that your Social Security retirement benefits continue until the time you die regardless of whether you have an extended life span.
Your Other Sources of Income
If you’ve got a steady source of income, for example, an investment or a part-time workit could be beneficial to extend your benefits to age 70 or at the very least, age 67. Because you might not require Social Security to live off so delaying the claim process and watching the benefit increase may be beneficial. If you’re getting close to at 62 or 62, and Social Security will be your sole source of income but you might not have a choice other than to claim benefits before the age of.
In general that the spouse of an Social Security beneficiary is entitled to 50 percent of the primary beneficiary’s payment upon reaching the full retirement age. If you apply for benefits before the deadline and reduce your own benefits and lose your spouse’s payout potential too. The reverse is also equally true when you wait until retirement age to apply for your own benefits and increase the amount of your spouse’s benefit too. A key point to remember however is that the spouse’s benefits will never be more than 50% of your earnings at the full retirement age regardless of whether you apply until the age of 70 and get a higher amount for yourself.
Your Tax Situation
For certain Americans, Social Security retirement benefits are not tax-deductible. But once your total earnings surpass a certain amount that is approximately 50% tax deductible and could be as high as 85% tax-deductible. Another reason is that the income of your other sources could influence the timing the filing of the time of your Social Security claim. If you are earning a regular income that is set to diminish when you reach 70 or 67 it is possible to defer taxation on these benefits by waiting to claim until the age of 70 or 67.
There are a lot of aspects to consider when claiming Social Security benefits. Apart from conducting yourself due research, planning and diligence, it’s recommended to talk to an advisor in the field of finance and/or tax professional prior to making the big decision.