When Should I Claim Social Security Benefits?

Many people believe that Social Security is bankrupt and when it is their turn to claim benefits, they will be out of luck.  As a result, some people claim benefits as soon as they can (age 62).  It is often the wrong decision.  Before you make this irrevocable choice, consider the following:

  1. You will receive a lower benefit than you could.  If you claim benefits at age 62 and your “normal retirement age” is 66, your benefit will be reduced by 25%; if it is 67, your benefit will be reduced by 30%.  These reduction percentages will apply for the rest of your life.
  2. Up to 85% of your reduced benefits could be subject to income tax, causing a further reduction in the amount you expect to receive.  Furthermore, adding Social Security benefits to your other income could push you into a higher tax bracket.
  3. If you are still working, your benefits could be further reduced.  Earning more than $15,480 prior to “full retirement age” (age 66 or age 67, depending on when you were born) means that you will have to pay back $1 of benefits for every $2 earned over $15,480.

Assume you earn $20,800.  That means you have earned $5,320 over the limit and $2,660 will be withheld from your benefit checks.  Social Security accomplishes this by withholding all checks the following year until the $2,660 is paid back.

On the other hand, if you are able to continue working, benefits increase 8% for each year you delay retirement up to age 70 (plus increases due to increased wages).  Where else can you find an 8% return that is virtually guaranteed?  Your only risk is the possibility that you might not live long enough to collect the increased benefit.

Social Security (and Medicare) is a complicated subject with many intertwining rules.  To obtain an estimate of your Social Security benefits and to fully investigate your options, go to www.ssa.gov or call us for a review.