Claiming Social Security Benefits Early

 

It is worth exploring what your options are when deciding to claim your social security benefits early to take full advantage of your retirement money. Deciding the retirement age at which you would get the maximum amount can be tricky. Depending on the circumstances, for some people claiming their social security benefits before full retirement age may turn out to be financially rewarding. But if you know that you could live well into your 80s and 90s delaying until at least full retirement age would be more prudent. Your full retirement age is 66 if your birth year is from 1943-1959 and 67 if your birth year is 1960 and later.

If your retirement age is 66 and claiming your benefits early, they would be up to 25% less depending on the number of months remaining until your full retirement age and 30% less for those for were born in 1960 or later. See table below.

Full retirement age (FRA) – 66 Full retirement age (FRA) – 67
Claiming benefits at age 62 25% less Claiming benefits early Up to 30% less
Claiming benefits at age 63 20% less
Claiming benefits at age 64 13.3% less
Claiming benefits at age 65 6.7% less

There is no increase or decrease in your benefits if you decide to start claiming at your full retirement age. If you apply for it more than six months upon reaching full retirement age, you will only be paid for the previous six months.

If you wait until 70 to claim your benefits, they will be increased by 8% per year and your benefits will be 76% larger for the rest of your life. Moreover, in the case of death early in retirement, that would imply a comfortable nest egg to the next generation. However, if you wait until 70 you are going to miss out on 96 payments. That is approximately four years worth of age-70 payments. Social Security Administration (SSA) reckons that early or late retirement will fetch you about the same Social Security benefits over your lifetime.

It can be a daunting task to determine your best retirement age, as there are various factors to consider. The SSA website offers online calculators to estimate your benefits at each age.

Should you run away with your money at age 62 or stretch it out until your full retirement age? Or are you a baby boomer who believes in delayed gratification? Here are some factors to help you in your decision-making process.

  • Consider your employment status. If you have a high-salaried job and are still able-bodied, then avoid claiming early retirement benefits as you may miss out on your opportunity to significantly boost your Social Security amount. But if you are physically unable to work and don’t qualify for disability then your best bet is early retirement. Additionally, you may be a good candidate for early retirement if you are inclined to believe that you have a shorter lifespan on medical grounds.
  • If you are married, then the greater contributing spouse should wait longer to claim benefits and the other spouse should start collecting benefits at the age of 62. That way if the higher-earning partner dies first, the survivor can take advantage of the deceased spouse’s full benefit. And until that time the couple enjoys both benefits of the lesser-earning spouse and the salary of the higher-earning spouse.
  • Claiming benefits before retirement age make sense if you are out of work and have no other means to pay for your dependent children or aging parents.
  • If you claim early retirement benefits your family’s survivors’ benefits would be reduced but your spousal or dependent benefits would remain the same.
  • Consider other sources of your retirement income including 401(k), workplace retirement, IRS and pension and weigh them against your individual situation.
  • Legitimate arguments also exist for investing it in a portfolio that can earn more than 7% returns.

With so many options and with as many as 8,000 strategies to choose from especially for a married couple it cannot be emphasized enough the importance of consulting with a tax professional.

 

About the author...

Joshua Katz, CPA

After working for several accounting large firms, I founded Universal Tax Professionals because I knew I could give expats more personalized services at lower rates. Feel free to email me directly at josh@universaltaxprofessionals.com.

Joshua Katz, CPA