The Great Timing Debate: Should I Claim Social Security Early or Late?

(StatePoint) Retirees become eligible to claim Social Security benefits at age 62, but the timing of when you claim can drastically impact your benefit amount. Still, when to claim will be entirely dependent on your unique situation. As you approach retirement, it’s important to understand the impact that timing has on your benefits.

“The timing of when you elect to receive your Social Security benefits warrants thoughtful consideration,” said Rich Guerrini, head of PNC Wealth Management. “This decision can significantly influence not only the total benefits you receive, but also the trajectory of your investment income, your tax obligations, and even your healthcare premiums.”

How Your Benefit is Calculated

Your benefits are based on your top 35 years of earnings, adjusted to account for changes in wages from the year they were earned. The Social Security Administration then applies a formula to those figures to arrive at your specific benefit amount at full retirement age (FRA), also referred to as your primary insurance amount (PIA).

There are three options for when to claim your benefits: claim early, claim at your FRA, or claim at age 70. Each comes with its own benefits and risks.

Claim at age 62

You can begin claiming your benefits as early as age 62, but your benefits will be permanently reduced. Still, there are instances when claiming early makes sense:

• You’re in poor health – The benefit of receiving Social Security early may be worth it, particularly if you’re unsure if you’ll live beyond your break-even point;
• You’re maximizing benefits with a spouse – Timing your claim to Social Security with your spouse can help you maximize a long-term benefit, while fulfilling cash flow needs in the present;
• You no longer want to work – The lifestyle benefits of not working may outweigh a larger future financial benefit from Social Security; or
• You want to preserve assets with growth potential – Claiming Social Security early may preserve investment or savings accounts.

Claim at your full retirement age

The primary benefit of waiting until your FRA is that you are then entitled to 100% of your benefits, without possibility of reductions over time. Your FRA for purposes of Social Security is based on the year you were born. For those born between 1943-1954, their FRA is 66. For those born between 1955-1959, there FRA is 66 + 2 months for every year after 1954 until 1960. For those born 1960 and later, their FRA is 67.

Delay your claim to age 70

You can delay claiming your benefits until the maximum age 70, with the primary advantage of increasing your benefits for the remainder of your life. Delaying a Social Security claim may make sense if:

• You have other forms of income – You may realize tax benefits from pulling from sources such as retirement accounts or savings;
• You’re still working – Working beyond your FRA may allow you to meet lifestyle expenses while increasing your future benefit; or
• You’re concerned about spousal or survivor benefits – When you delay claiming your Social Security, your spouse may be entitled to a larger spousal benefit and/or survivor’s benefit as well.

Further, cost-of-living-adjustments (COLA) begin giving your potential benefit a boost at age 62 – and that boost will continue to compound every year you delay making your claim.

Tax and Other Impacts

Generally, your Social Security income will be tax dependent on your “combined income,” which factors in gross income, nontaxable interest earned, and half of your Social Security income. Potential effects on healthcare premiums should also be factored in.

Additional insights can be found by visiting www.pnc.com.

While the question of when to claim Social Security benefits will be unique to your individual financial situation, it’s a decision that warrants careful consideration – and potentially even a professional opinion.

PHOTO SOURCE: (c) Inside Creative House / iStock via Getty Images Plus