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6 factors to help you decide when to claim Social Security

If you’re like most people, Social Security will be a significant portion of your retirement income, alongside the money you draw from your investments and any pension you may receive. As of June 2019, the average retired worker received a monthly benefit of $1,471 from the federal program.1
 
You may know Social Security typically kicks in as you retire. You have several options when it comes to actually claiming your benefit. You can start claiming as early as age 62; you can wait until full retirement age (between ages 66 and 67 depending on the year in which you were born); or you can delay your claim up until age 70.
 
If you claim early, your monthly benefit is lower than what it would be if you waited until full retirement age. If you delay your claim, your monthly benefit increases until you reach age 70. There are a number of factors you’ll want to consider as you decide when you want to claim Social Security. Here’s a look at six of the most common.
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Your employment status

Why claim early?

One main reason could be if claiming your benefit early allows you to reach a goal of early retirement. It could be that you’re ready to leave your job and feel comfortable that between Social Security and your retirement savings, you can live the life you want. If you are still working but earning less due to reduced hours, claiming early may help you make ends meet and not have to tap into your retirement savings, allowing those to continue to potentially earn returns in the market. Just remember that if you begin claiming your Social Security benefit early and are still working, there is an annual limit of how much you can earn before your monthly benefit is further reduced (beyond the reduction already in place for claiming early).

Why claim late?

If you have reached age 62 or even 67 but still want to work and your salary covers your living expenses, it may make more financial sense to wait to claim your Social Security benefits. If your salary increases, it may increase your Social Security benefit, because it’s based on lifetime earnings. You’ll have added monthly income in the future once you do decide to retire because your monthly benefit is higher the longer you wait until age 70. And even if you’re still working, your Social Security benefit won’t be reduced once you pass full retirement age, no matter how much you earn.
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Your budget

Why claim early?

If you need the monthly payment Social Security can provide because your employment situation has changed and you’re not making as much as you used to, claiming at age 62 may be a good option. Even if you’re still working, you may be able to claim Social Security without further reducing your benefit depending on how much you earn.

Why claim late?

If you don’t need the monthly income, delaying your claim for as long as possible (until age 70) will give you more monthly income once you do claim your benefits. This means you may not need to spend as much of your retirement savings every month. And your Social Security benefit will never be reduced, no matter how long you live.
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Your family

Why claim early?

If your family has special needs, such as having a disabled adult child, once you claim your benefit, your child may also be eligible for a benefit. Other situations include having a spouse caring for a child younger than age 16. If you and your spouse both work, having the spouse with a lower Social Security benefit start claiming early allows the other spouse’s benefit to grow while still providing the family with money.

Why claim late?

If your spouse is not yet 62, they will not be eligible for benefits when you file for your benefits. You may also want to consider the maximum benefit payable to you and your family, generally between 150% and 180% of your retirement benefit. If you feel that you and your family might be able to better maximize the benefits available on your record by having you delay, you may want to wait to claim.
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Your health

Why claim early?

It’s not an easy thing to think about, but your health status can impact the maximum benefit amount that you or your spouse may receive. If you are in poor health, you may want to start your benefit early. This may allow you to maximize the amount of money you and your spouse can claim from your pool of benefits, as well as allow you to help pay medical bills or fund lifelong dreams with the additional income.

Why claim late?

If you’re in good health and there aren’t other extenuating circumstances, delaying your claim will give you a higher monthly benefit for the entirety of the time you’re alive, potentially providing you with more money over time.
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Your legacy

Why claim early?

If you don’t need your Social Security benefit to help your monthly budget, you could begin claiming and use the proceeds to pay premiums on a permanent life insurance policy that could be passed on to a survivor. If you want to provide for a charity, you could fund a donor-advised fund with your Social Security payments and distribute the money to charities while you’re still alive.

Why claim late?

Your surviving spouse’s benefit as a widow or widower is based on your benefit, so the longer you wait to claim, the higher your monthly benefit, and, in turn, the higher their survivor benefit may be.
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Interest rate and earning potential

Why claim early?

If you can earn more than the annual increase in your benefits that you would achieve by waiting, either through high-yield savings accounts or by investing your Social Security monthly benefit, you could claim early.

Why claim late?

In general, your benefits increase by 8% for each year you delay between full retirement age and age 70. If you’re not planning on investing your Social Security benefits (which also exposes you to risk), you may earn more for the future by waiting to claim your benefits.

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1Social Security Administration Fact Sheet, June 2019 beneficiary data, https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
 
This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
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