Social Security is like math class: it can be intimidating and complicated, but it’s ultimately extremely beneficial when leveraged properly.
Having received a number of questions from clients over the years on the topic of Social Security, I thought it would be valuable to share answers to the questions I hear most.
When can I claim benefits, and how does timing affect me in the long run?
Technically, you can collect your Social Security benefits as early as age 62—but annual benefits will be reduced (25-30%) for the rest of your life. For that reason, I encourage my clients to think carefully before taking benefits earlier than they need to.
That said, if you claim benefits at your full retirement age (FRA), you will receive your full benefit without a permanent reduction.
If you choose to delay collecting your benefits beyond your FRA, you may do so. In this case, you’ll receive them at an increased amount of 8% per year (or 2/3 of 1% each month you wait after your FRA), up to age 70. This also locks in a higher survivor benefit.
So how do I know my full retirement age (FRA)?
It differs depending on your age. Use the chart below to determine yours:
I’ve decided when I want to start taking Social Security; now what?
Once you’ve decided when you’d like to start receiving benefits, you can file up to four months prior to the month you’d like benefits to begin (or three months prior to your birthday). You can apply online— however, I generally recommend making an appointment at a local office. (I prefer the Fern Ridge Office for St. Louis residents).
Once you have filed for benefits, unlike your FRA, which is calculated depending on your year of birth, your benefit payment date is calculated depending on your actual day of birth:
So, for example, if your birthday is March 12th, you’d receive your payment on the third Wednesday of every month.
What if I want to keep working but also receive benefits?
You can absolutely do that, but you need to know the parameters.
For example, if you choose to start collecting benefits earlier than the year you reach your FRA, you only get the full Social Security benefit payout if your pay is under an annual earnings limit. The chart below shows these limits in more detail. (It’s important to note that any benefits that are withheld don’t disappear, you’ll just have to wait for them until you do reach FRA to get them.)
In addition, if your earnings from January 1 the year you reach your FRA to end of the month prior to FRA are less than your earnings limit, $45,360, then benefits will be paid for the months prior to FRA.
For example, I recently had a client who reached her FRA in May 2018—let’s call her Sue. Sue began her benefits at age 62 and continued working. Because Sue’s earnings did not exceed $45,360 from January 1 through April 2018, she received all of her benefits for 2018.
I’m no longer married. What do I need to know about collecting Social Security on a former spouse?
Because this one requires a little more in-depth explanation, I thought it warranted a blog of its own. Click here to learn about collecting Social Security on a former spouse.
Social Security can get complicated, but it plays a key role in reaching financial freedom post-retirement. If you have any questions about these or other Social Security-related topics, your Wealth Manager would be happy to discuss them with you.