By Stan Hinden
The timing of your application for Social Security benefits can have a great effect on how much money you’ll get each month.
- I’m going to be retiring soon. How do I apply for Social Security, and how much will I get?
- The first question is easy to answer. You can apply online, call Social Security at 800-772-1213 (TTY 800-325-0778) or go to your local Social Security office. It’s best to apply three months before you want the money to begin arriving.
But the second question — how much will you get — has no simple answer. It will depend on how much you made during your working career. It will also depend on when you apply for benefits. The longer you wait, the more you’ll get each month.
Choosing the date to start could be one of the most important financial decisions you’ll ever make. It will determine how much money you’ll get each month from Social Security for the rest of your life. Over the years, your choice will be increasingly important if your Social Security income becomes a growing part of your retirement budget.
So before you open the tap, you’ll need to do some hard thinking about your future finances.
- What are the basic options on timing?
- Let me simplify with three choices: One, you retire at 62 (the earliest allowed age for retirement benefits) and opt for a lifetime of reduced monthly benefits. Two, you wait until your full retirement age — currently 66 for people born from 1943 to 1954 — and receive what Social Security calls “full benefits” each month. Or, three, you wait until age 70, earning delayed retirement credits that raise your benefit above the “full” amount.
As I said, this is a simplified explanation. You can, in fact, begin benefits at any point between 62 and 70, with the amount of your full benefit marked down by a proportional amount if you’re younger than full retirement age and marked up if you’re older.
- How big are the differences?
- To answer, let’s consider the case of Ralph, who was born in 1954. He will reach his full retirement age at 66. Based on his career earnings, Ralph will be eligible at that age for a full monthly benefit of $1,000. But if Ralph takes his benefits at 62, instead of at 66, he’ll receive only $750 a month, a 25 percent reduction.
Why the cut? The logic is that workers who start benefits at 62 will get more payments for a longer period of time. Thus, each check will be smaller.
If Ralph waits for his benefits until age 70, he’ll get $1,320 a month, 32 percent higher than the “full” amount. He’ll receive fewer payments over a shorter period of time, so each check will be larger.
By the way, Social Security does the numbers with the goal that, on average, people will receive the same lifetime amount regardless of when they begin benefits.
You can find more information in the Social Security handbook “When to Start Receiving Retirement Benefits.”
- Are there other ways that my initial choice of date will affect things in later years?
- Yes. For instance, if you’re married, the survivor benefit that some day may be paid to your spouse will also depend on when you initially take your retirement benefits. If you take reduced benefits at 62, that lifelong reduction will carry over into your spouse’s eventual survivor benefit.
- Does the decision on benefits have a tax impact?
- It can. Depending on how much other income you have, up to 85 percent of your Social Security benefits can be taxable. But, of course, only if you receive the benefits. So, by postponing benefits, you also postpone those taxes, which might make sense for your overall financial planning.
- Can I take my benefits at 62 but keep working?
- You’re allowed to do that, but you’ll then be subject to what’s called the earnings limit. It applies to people who are between 62 and full retirement age.
In 2017, the earnings limit is $16,920. One dollar in benefits will be withheld for every $2 in earnings above that threshold. Make enough and your benefit can be reduced all the way to zero. These benefits aren’t lost forever. Once you reach full retirement age, Social Security will recalculate your benefit, increasing it to reflect the money withheld.
However, the earnings limit goes away in the year you reach full retirement age. In that year, the earnings limit is $44,880, and $1 in benefits will be withheld for every $3 in earnings above the limit. But the limit applies only to earnings in months prior to the one when you mark your full retirement age birthday.
- I’ve done the math. If I take a reduced $750-a-month benefit at 62, I’ll get $9,000 in benefits per year, or a total of $36,000 in the four years before I reach age 66. But if I hold off to wait for full retirement age, and then die at 66, I won’t have collected a cent. Isn’t it risky to postpone your benefits?
- Perhaps. A lot depends on your health. Do you have chronic illnesses? It’s also important to take into account whether your parents and siblings lived to advanced ages or passed away when they were relatively young. That information can help you judge what may happen to you.
And, of course, there’s the question of how badly you need the money at 62. But if you can delay, the higher monthly amount you’ll get will be much-welcomed insurance if you turn out to have a long life in retirement.
- Are there tools available to help me prepare for this new chapter in life?
- Yes. One of the best is the government’s online My Social Security account. You can sign up for an account in a few minutes. Once you’ve got one, you’ll be able to get estimates of what your benefit will be at different ages. You also can check whether your annual earnings as stored in Social Security’s computers are accurate, a key step in ensuring that your future retirement benefits reflect your work history.
You can also get a forecast of your benefits by using AARP’s Retirement Calculator and Social Security Benefits Calculator.
Good luck! It’s a tough decision, but it’s worth spending the time to get things right, based on your personal circumstances.
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Stan Hinden, a former columnist for the Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question? Check out the Social Security Mailbox archive. If you don’t find your answer there, send an email to the Social Security Mailbox.