Timing is Everything: When Should YOU Take Social Security?

Americans who qualify for Social Security retirement benefits can start collecting their monthly payments at any point between the ages of 62 and 70. But what could be the ideal point within this eight-year window for you to claim your benefit?

Unfortunately, there is no perfect answer for everyone, and this is a more complicated question than it may seem. Here’s a quick guide to some of the important things you should consider when deciding the right time to start collecting Social Security for you and your family.

Total lifetime benefits

Social Security was initially designed so the average beneficiary would receive the exact same amount of money (in inflation-adjusted dollars) throughout their lifetime, whether they claimed their benefit at age 62, 70, or at any point in between. However, in the nearly 90 years since Social Security started, average life expectancies have changed significantly, as have some of the rules regarding Social Security benefit calculations.

According to the Social Security Administration (SSA), life expectancy at age 62 is about 84 years for men and 87 for women.¹ Full retirement age (FRA) is 67 years for people born in 1960 or later and is between 66 and 67 for people born from 1955 through 1959.

The short version is that the average person will get more money throughout their lifetime by waiting longer, even after adjusting for inflation.

Consider this simplified example. Let’s say that you were born in 1960 and therefore have an FRA of 67 years old. This means that you would experience a 30% reduction for claiming at 62 and a 24% increase for waiting until 70. Based on this information, here’s how much you could expect in lifetime benefits if you were entitled to $2,000 at FRA.

Data source: Motley Fool Wealth Management calculations. Assumes a life expectancy of 84 for men and 87 for women.

Should you claim Social Security if you are still working?

One of the biggest considerations is whether you are still working and what it could mean to your Social Security benefits.

You can apply to start Social Security benefits at any point after you turn 62, regardless of your employment situation. However, depending on your age and your income, your job can result in some or all of your Social Security benefits being withheld by the SSA.

This is informally known as the Social Security “earnings test.” And there are three categories of beneficiaries when it comes to the effects of working on Social Security benefits for 2023:

• If you reach your full retirement age after 2023, you can earn up to $21,240 this year with no effect on your Social Security benefits. Above this threshold, $1 is deducted for every $2 you earn.
• If you reach full retirement age during 2023, the earnings limit is $56,520 for the year, and $1 is deducted for every $3 above this threshold. Only the months prior to the month you’ll reach full retirement age count.
• If you have already reached full retirement age prior to 2023, there is no limit to the amount you can earn and still collect Social Security benefits.

The earnings test considers only “earned” income—specifically, money that you earn from a job or your net profit if you are self-employed. Any bonuses, commissions, tips, or vacation pay also counts. However, investment income, interest income, and other sources of retirement income like pensions or annuities don’t count. In other words, if you have substantial income from dividends or interest, for example, you don’t have to worry about your Social Security benefit being reduced.

So, how does this work, since the SSA obviously doesn’t know how much you’re going to earn each year? If one of the earnings tests applies to you, the SSA starts withholding all of your benefits at the beginning of the year until your entire benefit reduction is accounted for.

For example, if you are 63 and estimate that you will earn $30,000 in 2023, the earnings test shows that you should have $4,380 of your benefit withheld. Your monthly benefit in its entirety will be withheld in January, February, etc., until the entire amount has been withheld. The SSA does not pay partial benefits based on your estimated earnings, and any excess will be returned after the end of the year when your actual earnings are known.

Finally, it’s important to note that any benefits that are withheld because of your earnings aren’t lost. Once you reach full retirement age, your benefit will be recalculated to account for any withholdings.

5 factors that influence benefit timing

In addition to whether you are still working, there are several other factors that could play a role in your personal Social Security situation. Not all of these may apply to you, but here are some of the more common considerations:

MONEY NEEDS

Do you need the money?

This is perhaps the most obvious. If you’re planning on retiring and would have a serious cash flow problem or would be forced to draw down your retirement savings too fast without Social Security, starting your benefits may make sense—even if you would theoretically get more money by waiting.

HEALTH

How's your health?

The increases and decreases in Social Security benefits for claiming benefits after or before your FRA are based on average life expectancies. But your own health and family history should be taken into consideration as well. 

SPOUSE

Are you keeping your spouse waiting? 

Social Security provides spousal benefits in cases where one spouse was the primary earner. These can be as much as half of the primary earner’s full retirement benefit. In other words, if you were entitled to $2,000 per month at full retirement age, your spouse could collect as much as $1,000 per month even if they never worked at all.²

YOUNG CHILDREN

Do you have young children?

Many people don’t realize, but if you claim Social Security while you still have young children, they could get a benefit as well. If you are collecting retirement or disability benefits from Social Security and have children that fall into one of the following categories, they may be able to collect benefits as well:

• Under the age of 18
• Between 18 and 19 and a full-time student in K-12 school
• Age 18 or older with a disability that began before age 22

If you have one or more children in these categories, they could get as much as half of your full retirement benefit each. So, if you get $2,000 per month at full retirement age and have a 14-year-old child, they could receive as much as $1,000 per month. This can certainly have an impact on the best time for you to claim benefits.

FIRST CHECK TIMING

When do you want your first check?

As a final consideration, one important housekeeping note is that Social Security benefits are paid in arrears. In other words, your Social Security benefit for July will be paid in August. Plus, the exact timing of your check depends on your date of birth. For example, people born between the 1st and 10th will receive their checks on the second Wednesday of the month.

Also keep in mind that it can take up to three months from the time you apply until when your actual benefit starts. So, if you want to receive your first Social Security payment when you turn 62, you should apply three months before you reach that age.

The point is that when you apply for Social Security and when you receive your first monthly payment are two different things. So, keep that in mind when deciding your timetable.

No perfect answer

The decision of when to claim Social Security is a very personal and complex one, and there’s more to the story than simply figuring out at which age you’re likely to get the most money.

For instance, if you have a family that you’re worried about providing for, then you need to consider the impact of this decision on the continuity of income when you or your spouse passes away.

In addition, piecing together how Social Security factors into your retirement plan is paramount to determining the best time to claim your benefit.

So, unfortunately, there isn’t a perfect answer, but a Wealth Advisor can help you make the choice that could be right for you.