If you’re about to retire, you might be wondering whether you should start claiming your hard-earned Social Security benefits. If you need the income to support yourself and you’re at least 62—the minimum age to claim—the answer could be obvious. But if you have enough other income to keep you going until you’re older, how do you decide? Here are the key factors to consider.

Key Takeaways

  • You can collect Social Security as early as age 62, but your benefits will be permanently reduced.
  • Doing a break-even analysis can help you determine when you'd come out ahead by delaying benefits.
  • Spouses can also claim benefits based on their partner's work record as early as age 62.

How Benefits Are Calculated

In addition to how much you've earned over the years, the size of your monthly Social Security benefit will depend on when you were born and your age when you start claiming, down to the month. You'll receive your "full" or "normal" monthly benefit if you start claiming when you reach what Social Security considers your full retirement age. To find your full retirement age, see the chart below.

What’s Your Full Social Security Retirement Age?

 

Year of Birth

 

Full (Normal) Retirement Age

 

1937 or earlier

 

65

 

1938

 

65 and 2 months

 

1939

 

65 and 4 months

 

1940

 

65 and 6 months

 

1941

 

65 and 8 months

 

1942

 

65 and 10 months

 

1943–1954

 

66

 

1955

 

66 and 2 months

 

1956

 

66 and 4 months

 

1957

 

66 and 6 months

 

1958

 

66 and 8 months

 

1959

 

66 and 10 months

 

1960 and later

 

67

Let’s say your full retirement age is 66. If you start claiming benefits at 66 and your full monthly benefit is $2,000, you’ll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, your benefit will be reduced to 75% of your full monthly benefit (also called your primary insurance amount). In other words, you’ll get 25% less per month and your check will be $1,500. You’ll continue to receive a reduced benefit not just until you turn 66, but for the rest of your life (though it will go up slightly over time with cost-of-living adjustments). You can do the math for your own situation using the Social Security Administration (SSA) Early or Late Retirement calculator (scroll down the linked page to find it).

If you wait until you’re 70 to start claiming benefits, you’ll get an extra 8% per year, or, in total, 132% of your primary insurance amount ($2,640 per month in the example above) for the rest of your life. Claiming after you turn 70 doesn’t increase your benefits further, so there’s no reason to wait any longer.

The SSA’s online retirement calculators can also help you determine your full retirement age, the SSA’s estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, individualized projections of your benefits based on your personal work record, and more.

The longer you can afford to wait (up to 70), the larger your monthly benefit will be. But delaying benefits doesn’t necessarily mean you’ll come out ahead overall. You'll also need to weigh some other factors, including your expected longevity and whether you or your spouse plan to file for spousal benefits, as well as the tax, investment opportunity, and health coverage implications.

Your Likely Longevity

So much of our strategizing about how to maximize Social Security retirement benefits depends on guesses of how long we’ll live. Of course, any of us could die in an accident or get a dire diagnosis next week. But putting aside these unpredictable possibilities, how long do you think you’ll live? How are your blood pressure, cholesterol, weight, and other markers of health? How long have your parents and other relatives lived? If you foresee an above-average life expectancy for yourself, you may come out ahead by waiting to claim benefits. If not, you might want to claim as soon as you’re eligible.

To make an educated guess about when to claim, it's helpful to do a break-even analysis. That will tell you when the total benefits you'd receive by waiting will begin to exceed the total you'd receive by taking benefits earlier. For example, if you'd get $1,500 a month starting at age 62 or $2,000 a month starting at age 66 you will have received roughly the same amount in total benefits by age 77 or so. At that point, the higher monthly benefits you'd get as a result of waiting will begin to pay off.

The Social Security website will tell you that, regardless of when you start claiming, your lifetime benefits will be similar if you live as long as the average retiree. The problem is that most people will not have an average life expectancy, hence all the different claiming strategies.

Claiming Spousal Benefits

Being married can further complicate the decision of when to take Social Security because of the program’s spousal benefits. Some divorcees are also entitled to benefits based on their ex-spouse's work record.

Spouses who didn’t work at a paid job or who didn’t earn enough credits to qualify for Social Security on their own are eligible to receive benefits starting at age 62 based on their spouse’s record. As with claiming benefits on your own record, your spousal benefit will be reduced if you take it before reaching full retirement age. The highest spousal benefit you can receive is half the benefit your spouse is entitled to at their full retirement age.

While spouses will get a lower benefit if they claim before reaching their own full retirement age, they will not get a larger spousal benefit by waiting to claim after full retirement age—say, at age 70. But a nonworking or lower-earning spouse may get a larger spousal benefit if the working spouse has some late-career, high-earning years that boost their benefits.

When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouse’s benefit. That’s why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, the surviving, lower-earning spouse will receive a larger Social Security check for life.

When the surviving spouse hasn’t reached full retirement age, he or she will be entitled to prorated amounts starting at age 60. At their full retirement age, the surviving spouse is entitled to 100% of the deceased spouse’s benefit or to their own benefit, whichever is higher.

Note that the claiming strategy called file and suspend, which allowed married couples of full retirement age to receive spousal benefits and delayed retirement credits at the same time, ended as of May 1, 2016. However, spouses born before January 2, 1954, who have attained their full retirement age may still be able to file a restricted application. It allows them to claim spousal benefits while delaying their own benefits up to age 70.

Taxes on Your Benefits

Your Social Security benefits may be partially taxable if your "combined income" exceeds certain thresholds. Regardless of how much you make, the first 15% of your benefits are not taxed.

The Social Security Administration defines “combined income” using this formula:

Your adjusted gross income
+ Nontaxable interest (for example, municipal bond interest)
+ ½ of your Social Security benefits
= Your “combined income”

If you file your federal tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, you may have to pay tax on up to 85% of your benefits.

If you’re married filing a joint return and your combined income is $32,000 to $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, you may have to pay tax on up to 85% of your benefits. One way to determine your tax liability is to use an online tool like the Motley Fool’s Social Security tax calculator (scroll down the page after clicking the link).

Let’s say you receive the maximum Social Security benefit for a worker retiring at full retirement age in 2019: $2,861 per month. Your spouse receives half as much, or $1,430 a month. Together, you receive $4,291 a month, or $51,492 per year. Half of that, or $25,746, counts toward your “combined income” for determining whether you have to pay tax on part of your Social Security benefits. Let’s further assume that you don’t have any nontaxable interest, wages, or other income except for your traditional IRA’s required minimum distribution (RMD) of $10,000 for the year.

Your combined income would be $35,746 (half of your Social Security income plus your IRA distribution), which would make up to 50% of your Social Security benefits taxable because you've exceeded the $32,000 threshold. Now, you may be thinking, 50% of $51,492 is $25,746, and I’m in the 12% marginal tax bracket, so the tax on my Social Security benefits will be $3,089. Fortunately, the calculation takes other factors into account, and your tax would really be a mere $225. You can read all about the taxation of Social Security benefits in IRS Publication 915.

How do these tax considerations affect when you should apply for Social Security benefits? At today's marginal tax rates, they might not have much of an impact for most people. But tax rates and income thresholds can change. So it's worth remembering that you will lose less of your Social Security to taxes if you are in a lower marginal tax bracket when you begin to collect.

Also note that if you decide to return to work, even part time, and aren't yet of full retirement age, your Social Security benefits may be temporarily reduced. The reduction is $1 for every $2 of earned income over $17,640 (in 2019). During the year in which you reach full retirement age, your benefits will be reduced by $1 for every $3 in income over $46,920 (in 2019), until the month you become fully eligible. That money isn't lost, however. The SSA will credit it to your record when you reach full retirement age, resulting in a higher benefit.

Investing Your Benefits

Are you a disciplined, savvy investor who thinks you could earn more by claiming early and investing your benefits than by claiming later and receiving Social Security’s guaranteed higher benefits? Then you may want to claim early instead of waiting until age 70.

Most investors, however, are neither disciplined nor savvy. People take early benefits intending to invest the money, then use it to tour Europe (or pay everyday bills) instead. And even savvy investors can't predict how their investments will perform, especially in the short term.

If you claim early, invest in the stock market and average an 8% annual return—which is far from guaranteed—you will almost certainly come out ahead compared with claiming late, according to an analysis by Dan Caplinger, director of investment planning for Motley Fool. But if your returns are lower, if you receive reduced Social Security benefits because you continue working past age 62, if you have to pay taxes on your Social Security income, or if you have a spouse who would benefit from claiming Social Security benefits based on your record, then all bets are off. Most people, in other words, will not benefit from this strategy—but it is a strategy to be aware of in case you’re one of the few who might.

Claiming Social Security benefits could make you ineligible to put more money into a Health Savings Account (HSA).

Timing and Your Health Coverage

Your health insurance coverage can also play a role in deciding when to claim Social Security benefits.

For example, do you have a health savings account (HSA) that you would like to keep contributing to? If so, note that if you’re 65 or older, receiving Social Security benefits requires you to sign up for Medicare Part A. But once you sign up for Medicare Part A, you’ll no longer be allowed to add funds to your HSA.

The Social Security Administration also cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D. If you are still receiving health insurance from your or your spouse's employer, however, you might not have to enroll in Medicare yet.

The Bottom Line

You don’t have to take Social Security just because you’re retired. If you can live without the income until age 70, you will ensure the maximum payment for yourself and lock in the maximum spousal benefit. Just be sure you have enough other income to keep you going and that your health is good enough that you are likely to benefit from the wait. When you’re ready, you can apply for benefits online, by phone, or at your local Social Security office.