Social Security is a critical component of retirement income for millions of Americans. However, deciding when and how to claim your benefit can have a major impact on your financial well-being later in life. Before making a decision, it’s important to understand how Social Security works, how your benefit is calculated, and the strategies available to you.
Here’s what you should know:
How Social Security Benefits Are Calculated
Your Social Security benefit is based on your highest 35 years of earnings, adjusted for inflation. The Social Security Administration (SSA) uses these earnings to calculate your Primary Insurance Amount (PIA) — the benefit you would receive at your Full Retirement Age (FRA).
If you have fewer than 35 years of earnings, the missing years are counted as zeros, which can lower your benefit. That’s why maintaining steady earnings over your career is important for maximizing your benefit.
What Is Full Retirement Age (FRA)?
Full Retirement Age is the age at which you’re entitled to 100% of your Social Security benefit:
- Born 1943–1954: FRA is 66
- Born 1955–1959: FRA gradually increases up to 67
- Born 1960 or later: FRA is 67
If you claim benefits before FRA (as early as age 62), your monthly payment is permanently reduced. If you delay claiming benefits beyond FRA (up to age 70), you earn delayed retirement credits, increasing your benefit by about 8% per year.
Early Claiming
Pros:
- You get income sooner.
- It may make sense if you have health issues or a shorter life expectancy.
Cons:
- Reduced benefits are permanent.
- Lower spousal and survivor benefits.
Delaying Benefits
Pros:
- Higher monthly income for life.
- Higher spousal and survivor benefits.
- Provides a stronger hedge against longevity risk.
Cons:
- You need to fund retirement expenses from other sources while you wait.
Important:
The “crossover point” — when the total lifetime income from waiting exceeds that of claiming early — typically happens around age 81 or 82. If you expect to live into your 80s or beyond (as many people today do), delaying benefits is often financially beneficial.
Other Important Considerations
Working While Receiving Benefits
If you claim Social Security before FRA and continue to work, your benefits may be temporarily reduced if your earnings exceed certain thresholds. Once you reach FRA, you can earn any amount without reductions.
Taxes on Benefits
Depending on your overall income, up to 85% of your Social Security benefit could be taxable. Understanding your broader income picture is important when planning when to claim.
Spousal and Survivor Benefits
- Spousal benefits allow a lower-earning spouse to receive up to 50% of the higher earner’s benefit.
- Survivor benefits allow a widow or widower to receive up to 100% of the deceased spouse’s benefit.
Strategic claiming between spouses can significantly increase lifetime income, especially if one spouse delays claiming to maximize survivor benefits.
Finding the Right Strategy for You
While every situation is unique, we generally recommend waiting until Full Retirement Age (or later) to claim Social Security whenever possible.
Waiting allows you to receive your full benefit, maximize potential spousal and survivor benefits, and provide greater financial security later in retirement — when you may need it most. Considering the typical crossover point around age 82, waiting often leads to greater lifetime income, especially for those in good health.
Deciding when to take Social Security is one of the most important choices you’ll make for your retirement. A thoughtful strategy today can lead to a more comfortable and confident retirement tomorrow.
