When To Apply for Social Security Benefits

Photo credit: jb

As you might expect, the answer to the title isn’t cut-and-dried… it’s different for each individual, depending upon your circumstances. There is no magical “best age” for everyone. It’s important to understand the impacts and consequences of choosing to apply at different times in your life.

As we’ve discussed in other articles in this blog, when you apply for benefits before your Full Retirement Age (FRA) your benefit will be reduced. The amount of the reduction is dependent upon the amount of time between the date you apply and your FRA – earlier application results in greater reduction in benefit.

The opposite holds true for delaying your application for benefits after your FRA:  the more you delay, up to age 70, the more your benefit will increase. At age 70, the benefit no longer increases, so it doesn’t (in general) profit for you to delay receipt of benefits after that age.

Actuarial Results

The Social Security Administration has a bunch of really smart actuaries working for them, and these actuaries have determined the perfect mix of “average life expectancy” versus the reductions or increases. The result is that if you’re the average person who lives to the average life expectancy, it doesn’t matter much when you begin receiving your benefit. It will always work out the same.

Note: I don’t profess to know how the actuaries do this.  I have heard that it involves a trip to a cemetery at midnight and the possible sacrifice of a chicken. But, I can’t confirm, deny or divulge my sources on that.

Factors to Consider

You should consider several things as you make your Social Security filing decision – especially since many of us expect to live longer than the “average”, or at least we hope to. Statistics tell us that about one of every four people age 65 today will live past age 90. One of ten will live past age 95. So if your family history tends to run past the occasional octogenarian, you should certainly weigh longevity into your equation. For most choices of delaying receipt of benefits, the break-even ranges between the approximate ages of 78 to 82. (By “break-even”, I mean that filing at any particular age results in roughly the same lifetime benefit as of those approximate ages, 78-82. This break even is based solely on one individual, not including spousal or other dependents’ benefits.)

In addition to longevity, consider the impact that your choice could have on your family. Whenever you choose to apply for benefits will lock you into that amount as your benefit base for the rest of your life. And that benefit base impacts your surviving spouse’s benefit, plus the timing on a spousal benefit while you’re still alive. The benefit base can also impact other members of your family that might receive benefits based upon your earnings record.

It is important to note that it’s possible to make a change to your choice – using the “Do Over” tactic, so you’re not completely locked in when you make a choice.  But for many folks this may be out of reach. Note: the “do over” has been limited since this article was originally written, to only allow the reset within the first 12 months of filing.

Other factors that you need to consider as you make your decision are:  whether you plan to work in retirement, whether you have other retirement income sources, and your anticipated future financial needs and obligations.

Another Way to Increase Your Benefit

I mentioned earlier that your application for benefits locks you into a base benefit amount for the rest of your life. That’s not entirely the case – if you continue to work while receiving benefits, you’ll continue accruing credit for your earnings. If you have earlier years on your record with low (or no) earnings credits, your benefit could increase over time. In addition, you can suspend benefits once you reach FRA which could allow you to increase your base benefit at that point in your life as well.

However, working during your retirement (before FRA) could have the impact of reducing your benefit, depending on how much you’re earning. This is partly made up for when you reach FRA, but it’s important to know so that you can plan for the Social Security benefit reductions from working.

Calculator

The Social Security Administration has online Social Security benefit calculators that will help you to estimate your benefit amounts at various ages, which can help you in your decision-making process.