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All future Social Security recipients face this question at some point: When should I file for benefits?
As you are likely aware, age 62 is the earliest that you can file for retirement benefits. By filing at this age, you will begin receiving your benefit at a reduced amount – perhaps as much as 30% reduced from your Primary Insurance Amount (PIA), the amount you could receive at your Full Retirement Age, or FRA.
Waiting to file until your Full Retirement Age (FRA) will allow you to receive the full benefit amount, without reductions. You could also wait until age 70 to file for benefits, which would result in an overall increase to your monthly benefit amount, by as much as 32% for some. Granted, you will have foregone several years’ worth of payments if you wait to file at some age later than 62, but on average, it all works out about the same. The system is designed using that likelihood as its basis.
The way that these reductions and increases are designed is to ensure that, on average, all Social Security recipients, regardless of the age that they begin receiving benefits, ultimately receive roughly the same amount of benefits during their lifetimes. This is all calculated by actuaries, and it involves the population’s average lifespan.
So if you start receiving your benefit earlier, even though it’s reduced you’re receiving it for a longer period of time than waiting until later to file. On the other hand, if you delay filing until FRA or age 70, your benefit is greater each month, but you’ll be receiving it for a shorter period of time. Eventually these strategies “cross over” – that is, one method begins to work more in your favor than another – at roughly age 82, give or take a few years.
What I mean by that is that, filing earlier at the reduced rate will pay you more in overall benefits up to the crossover age, at which point the later filing ages will begin paying you more over your lifetime if you live beyond that. If you take into account the annual cost-of-living adjustments (COLAs), the break-even point is actually quite a bit lower, possibly as early as age 76. This is due to the fact that the COLA is a percentage applied to your monthly benefit – and if your monthly benefit is reduced by filing early, your COLA adjustments will be smaller as well, and vice versa when you file later.
So, assuming you have the resources to do so and if you plan to live past age 76, it most likely is in your best interest to wait until the latest point to file for your benefit. And if you need more reasons to consider delayed application, read on.
Survivor Benefits
One additional reason that you might want to delay applying for your benefit is if you have family members that will depend upon your benefit upon your passing. This is due to the fact that the survivors’ benefit based on your record, for your survivors, are calculated using the actual benefit that you were receiving at your death in most cases. So, if you delayed filing for benefits and therefore received a higher benefit amount, your surviving spouse (and other family members, if eligible) will receive a higher survivor benefit amount for the remainder of his or her life, assuming that the Survivor Benefit is greater that his or her own retirement benefit.
This gives you another reason that delaying benefits could be the better option. Otherwise, if your benefit is the same as or smaller than your spouse’s benefit, or if you don’t have a spouse, then it’s up to you: if you think you’ll outlive the average and you have the resources to do so, it’s better to wait. If you don’t think you’ll live that long, then start as early as you like.
* The above review doesn’t take into account a situation where you may still be working while receiving Social Security retirement benefits. I’ll cover that in another article.
