When to Take Social Security: The Complete Guide

Source: Social Security Administration

How to Calculate Social Security Benefits

Let’s accidental your FRA is 66. If you commencement claiming benefits astatine property 66 and your afloat monthly payment is $2,000, past you’ll get $2,000 per month. If you commencement claiming benefits astatine property 62, which is 48 months early, past your payment volition beryllium reduced to 75% of your afloat monthly benefit—also called your “primary security amount.” In different words, you’ll get 25% little per month, and your cheque volition beryllium $1,500.

That reduced payment won’t summation erstwhile you scope property 66. Rather, you’ll proceed to person it for the remainder of your life. It whitethorn spell up implicit clip owed to cost-of-living adjustments (COLAs), but lone slightly. You tin bash the mathematics for your ain concern utilizing the Social Security Administration (SSA) Early oregon Late Retirement Calculator, 1 of a fig of payment calculators provided by the SSA that tin besides assistance you find your FRA, the SSA’s estimation of your beingness expectancy for payment calculations, unsmooth estimates of your status benefits, individualized projections of your benefits based connected your idiosyncratic enactment record, and more.

What Happens If You Claim After Your FRA?

If you hold until your property 70 to commencement claiming benefits, past you’ll get an other 8% per year—or, successful total, 132% of your superior security magnitude ($2,640 per period successful the illustration above) for the remainder of your life. Claiming aft you crook 70 doesn’t summation your benefits further, truthful there’s nary crushed to hold longer than that.

The longer you tin spend to hold aft property 62 (up to 70), the larger your monthly payment volition be. Nevertheless, delaying benefits doesn’t needfully mean that you’ll travel retired up overall. Other factors should beryllium considered, including your expected longevity and whether you (or your spouse) program to record for spousal benefits. You should besides see the tax, concern opportunity, and wellness sum implications.

Your Likely Longevity

So overmuch of our strategy connected maximizing Social Security status benefits depends connected guesses arsenic to however agelong we’ll live. Of course, immoderate of america could dice successful an mishap oregon get a dire diagnosis adjacent week, but putting speech these unpredictable possibilities, however agelong bash you deliberation you’ll live? How are your humor pressure, cholesterol, weight, and different wellness markers? How agelong person your parents and different relatives lived?

If you foresee an above-average beingness expectancy for yourself, past you whitethorn travel retired up by waiting to assertion benefits. If not, past you whitethorn privation to assertion your benefits arsenic soon arsenic you’re eligible.

To marque an educated conjecture astir erstwhile to claim, try doing a breakeven analysis. The investigation tin archer you erstwhile the full benefits you would person by waiting volition statesman to transcend the full that you would person by taking benefits earlier. If, for example, you’d get $1,500 a period starting astatine property 62 oregon $2,000 a period starting astatine property 66, past you volition person received astir the aforesaid magnitude successful full benefits by property 77 oregon so. At that point, the higher monthly benefits that you’d get arsenic a effect of waiting volition statesman to wage off.

The Social Security website volition archer you that careless of erstwhile you commencement claiming, your beingness benefits volition beryllium akin if you unrecorded arsenic agelong arsenic the mean retiree. The occupation is that not everyone volition person an mean beingness expectancy, hence each the antithetic claiming strategies.

Claiming Spousal Benefits

Because of the program’s spousal benefits, being joined tin further complicate the determination of erstwhile to instrumentality Social Security. Some divorced spouses are besides entitled to benefits based connected their ex-spouse’s enactment record.

Spouses who don’t suffice for their ain Social Security

Spouses who didn’t enactment astatine a paid occupation oregon didn’t gain capable credits to suffice for Social Security connected their ain are eligible to person benefits starting astatine property 62 based connected their spouse’s record. As with claiming benefits connected your ain record, your spousal payment volition beryllium reduced if you instrumentality it earlier reaching your FRA. The highest spousal payment that you tin person is fractional of the payment that your spouse is entitled to astatine their FRA.

While spouses get a little payment if they assertion earlier reaching their ain FRA, they volition not get a larger spousal payment by waiting to assertion aft their FRA—say, astatine property 70. However, a nonworking oregon lower-earning spouse whitethorn get a larger spousal payment if the moving spouse has immoderate late-career, high-earning years that boost their benefits.

When a spouse dies

When 1 spouse dies, the surviving spouse is entitled to person the higher of their ain payment oregon their deceased spouse’s benefit. That’s wherefore fiscal planners often counsel the higher-earning spouse to hold claiming. If the higher-earning spouse dies first, past the surviving, lower-earning spouse volition person a larger Social Security cheque for life.

When the surviving spouse hasn’t reached their FRA, they volition beryllium entitled to prorated amounts starting astatine property 60. Once astatine their FRA, the surviving spouse is entitled to 100% of the deceased spouse’s payment oregon their ain benefit, whichever is higher.

No much ‘file and suspend’

Note that the claiming strategy called “file and suspend,” which allowed joined couples who person reached their FRA to person spousal benefits and delayed status credits astatine the aforesaid time, ended arsenic of May 1, 2016. However, spouses calved earlier Jan. 2, 1954, who person attained their FRA may inactive beryllium capable to record a restricted application. It allows them to assertion spousal benefits portion delaying their ain benefits up to property 70.

Taxes connected Your Benefits

Your Social Security benefits whitethorn beryllium partially taxable if your combined income exceeds definite thresholds. Regardless of however overmuch you make, the archetypal 15% of your benefits are not taxed.

The SSA defines combined income utilizing this formula:

• Your adjusted gross income + nontaxable involvement (for example, municipal enslaved interest) + fractional of your Social Security benefits = your combined income

If you record your national taxation instrumentality arsenic an idiosyncratic and your combined income is $25,000 to $34,000, past you whitethorn person to wage income taxation connected up to 50% of your benefits. If your combined income is much than $34,000, you whitethorn person to wage taxation connected up to 85% of your benefits.

If you’re married, filing a associated return, and your combined income is $32,000 to $44,000, past you whitethorn person to wage income taxation connected up to 50% of your benefits. If your combined income is much than $44,000, you whitethorn person to wage taxation connected up to 85% of your benefits.

An Example of Taxed Benefits

Let’s accidental you person the maximum Social Security payment for a idiosyncratic retiring astatine FRA successful 2021: $3,148 per month. Your spouse receives fractional arsenic much, oregon $1,574 a month. Together, you person $4,722 a month, oregon $56,664 per year. Half of that, oregon $28,332, counts toward your combined income for determining whether you person to wage taxation connected portion of your Social Security benefits. Let’s further presume that you don’t person immoderate nontaxable interest, wages, oregon different income but for your accepted idiosyncratic status account’s (IRA’s) required minimum distribution (RMD) of $10,000 for the year.

Your combined income would beryllium $38,332—half of your Social Security income, positive your IRA distribution—which would marque up to 50% of your Social Security benefits taxable due to the fact that you’ve exceeded the $32,000 threshold. Now, you whitethorn beryllium thinking, 50% of $56,664 is $28,332, and I’m successful the 12% taxation bracket, truthful the taxation connected my Social Security benefits volition beryllium $3,399.84.

Fortunately, the calculation takes different factors into account, and your taxation would beryllium a specified $225. You tin work each astir the taxation of Social Security benefits successful the Internal Revenue Service (IRS) Publication 915.

Tax Considerations for Social Security Benefits

How bash these taxation considerations impact erstwhile you should use for Social Security benefits? At today’s marginal taxation rates, they whitethorn not person overmuch of an interaction connected astir people. Still, taxation rates and income thresholds tin change, truthful it’s worthy remembering that you volition suffer little of your Social Security to taxes if you are successful a little marginal taxation bracket erstwhile you statesman to collect.

You should besides enactment that if you determine to instrumentality to work, adjacent portion time, and aren’t yet astatine your FRA, your Social Security benefits whitethorn beryllium temporarily reduced. The simplification is $1 for each $2 of earned income implicit $18,960 successful 2021 (and $19,560 successful 2022). During the twelvemonth erstwhile you scope your FRA, your benefits volition beryllium reduced by $1 for each $3 successful income implicit $50,520 successful 2021 ($51,960 successful 2022) until the period erstwhile you go afloat eligible. That wealth isn’t lost, however. The SSA volition recognition it to your grounds erstwhile you scope your FRA, resulting successful a higher benefit.

Investing Your Benefits

Are you a disciplined, savvy capitalist who thinks you could gain much by claiming aboriginal and investing your benefits than by claiming aboriginal and receiving Social Security’s guaranteed higher benefits? Then you whitethorn privation to assertion aboriginal alternatively of waiting until property 70.

However, it's important to retrieve that investments person risks, and you whitethorn suffer a information oregon each of your invested money. Even the savviest investors can’t foretell however their investments volition perform, particularly successful the abbreviated term.

If you assertion early, put successful the banal market, and mean an 8% yearly return—which is acold from guaranteed— past you astir surely volition travel retired up compared with claiming late, according to an investigation by Dan Caplinger, manager of concern readying for The Motley Fool. However, if your returns are lower, if you person reduced Social Security benefits due to the fact that you proceed moving past property 62, if you person to wage taxes connected your Social Security income, oregon if you person a spouse who would payment from claiming Social Security benefits based connected your record, past different Caplinger investigation suggests that each bets are off.

Timing and Your Health Coverage

Your wellness security sum tin besides play a relation successful deciding erstwhile to assertion Social Security benefits. Do you person a health savings account (HSA) to which you would similar to support contributing? If so, enactment that if you’re property 65 oregon older, past receiving Social Security benefits requires you to motion up for Medicare Part A, and erstwhile you motion up for Medicare Part A, you’ll nary longer beryllium allowed to adhd funds to your HSA.

The SSA besides cautions that adjacent if you hold receiving Social Security benefits until aft property 65, you mightiness inactive request to use for Medicare benefits wrong 3 months of turning 65 to debar paying higher premiums for beingness for Medicare Part B and Part D.

In 2022, the mean monthly premium for Part D volition beryllium $33 per period versus $31.47 successful 2021. If you enroll successful a Medicare Advantage plan, the mean monthly premium volition beryllium $19 per period successful 2022 versus $21.22 successful 2021. However, if you are inactive receiving wellness security from your oregon your spouse’s employer, you mightiness not yet person to enroll successful Medicare.

The Bottom Line

You don’t person to instrumentality Social Security conscionable due to the fact that you’re retired. If you tin unrecorded without the income until property 70, past you volition guarantee the maximum outgo for yourself and fastener successful the maximum spousal benefit. Just beryllium definite that you person capable different income to support you going and that your wellness is bully capable that you are apt to payment from the wait. When you’re ready, you tin use for benefits online, by phone, oregon astatine your section Social Security office.