Part 1: The Basics
Quick Summary:
- Filing for Social Security is one of the most important decisions for a retiree
- There are valid reasons to file early – as well as delaying until a later age
- The most common age to file for benefits is 62. Many of these early filers would have likely been better off waiting
- Your filing date is best determined not as an isolated decision but rather by looking at your entire financial picture
Here at Stone Pine, we specialize in helping people transition to retirement. This transition is an exciting time of new opportunities and possibilities; however, it can also be stressful as lots of important decisions need to be addressed. We break these decisions down into four categories:
- Income Replacement
- Housing
- Taxes
- Health Care
Within each of these categories, there are many options and variables that need to be considered based on your individual situation and preferences.
Let’s start with Income Replacement and, more specifically, Social Security. To break it down, we have created a 3 Part Series on Social Security. Today in Part 1, we will start by going over a few basic concepts regarding Social Security. Then, in Part 2 and 3, we will discuss specific reasons why someone would want to consider filing early or later.
Overview of Society Security
The government, in an effort to be as fair as possible to everyone, provides you with an overwhelming amount of choices regarding how and when you file for benefits. While these choices can seem trivial in the moment, they can add up to a significant difference in money over the decades of your retirement.
Over the past few years, we have been teaching classes on Social Security and inevitably the top question we receive is “When should I file for benefits?” According to statistics published by the Social Security Administration, about 60% of applicants file for benefits prior to Full Retirement Age. While there are certainly valid reasons for filing early, it is likely that many would have been better served by waiting longer to file.
Social Security Basics
- You can file to receive benefits in any month between the ages of 62-70.
- Your “Full Retirement Age” for those born between 1943-1954 is age 66. If you were born after 1954, the Full Retirement Age starts to increase incrementally by a couple of months until it reaches age 67 for those born in 1960 or later.
- The “Break-even Age” for benefits received is roughly age 81. This means if you file at any age between 62-70, you will receive approximately the same amount of money from Social Security by age 81.
- If you file for benefits early, you receive a reduced payment for life. If you delay beyond Full Retirement Age, you receive an increased payment for life. At age 62, the reduction is about 25%. At age 70, the increase is about 32%.This reduction or increase happens incrementally every month before or after your Full Retirement Age. To keep the math simple, here’s an example with someone who has a Full Retirement Age benefit of $1,000/month:
Stay tuned for Part 2, where we will discuss some good reasons to consider filing for benefits prior to your Full Retirement Age.
