With thousands of rules governing social security benefits, its no wonder that many beneficiaries feel overwhelmed by a seemingly simple question: when should they begin taking their benefit?
Among the factors that will affect your benefit are your years of service, average salary, retirement status, income, marriage status, whether you’ve been divorced, your health, whether you were a public or private employee (or both!) and many other details and situations that will determine your optimal benefit.
Rather than go over every scenario and the governing rules, lets cover the basic structure of social security and a few of the guiding factors in making a good decision with your benefits.
There are three main types of social security benefits: personal, spousal and survivor.
Personal benefits are the benefits you accrue as part of your own work history.
Spousal benefits are your benefits that come from your spouses work history, and are generally half of your spouse’s personal benefit.
Survivor benefits are when you receive your spouse’s personal benefits after their death.
Personal and spousal benefits can begin as early as age 62. Also, if you were divorced, but were married for at least 10 years and have not remarried, your earliest age to take spousal benefits is also 62. For widows and widowers, they may take survivor benefits beginning at 60.
For every year you wait, your benefit increases 6% per year until you reach full retirement age.
Your full retirement age (FRA) depends on the year you were born in. For those born in 1960 or later, your FRA is age 67. For those born before 1960, your FRA gradually declines to as early as age 65.
After your FRA, you can delay your personal benefit to age 70 and your benefit will increase 8% for every year you wait. Personal benefits should never be delayed beyond age 70.
For spousal benefits, there is no benefit to waiting beyond your full retirement age. In other words, spousal benefits do not receive the 8% annual increase for waiting that personal benefits do.
The last ground rule to social security is that in general, you should not take benefits before full retirement age if you are still working. There are exceptions, but in most cases this should be avoided.
These are by no means ALL of the rules, but they make of the foundational elements of how the program works.
Now let’s talk about the key factors in making a good decision.
The first, and BY FAR most important factor, is your health. The topic of morbidity is a hard one to face, but it plays the most significant role in determining when to take your benefit. Are you healthy? Do you have a chronic disease or condition? If so, you are likely better off taking your benefit as soon as you can.
Next, what other financial resources do you have? This goes beyond whether you can afford to delay benefits. Social security benefits are taxed in many cases, so your income and the type of savings you have for retirement may also play a role in determining when to take benefits.
Finally, if you are married, it’s important to maximize your total benefit between both you and your spouse. This means coordinating both your personal benefits AND spousal benefits so that the total benefit to the family is as high as it can be for the life expectancy of both spouses.
So when should you take your social security benefit? The answer is it’s complicated, and you may benefit from working with an advisor to help you make the right decisions for you.