Should Early Retirees Claim or Delay Social Security?

Early retirement is appealing because it gives you more years to spend your time the way you want rather than being chained to a desk. But it also means you need a lot more money if you want to live comfortably. That's not always easy to pull off on your own.

It leaves many early retirees wondering if they're better off applying for Social Security now so they can get help covering their expenses earlier or if they should hold out in the hope of maximizing their lifetime benefit. The answer isn't as clear-cut as you might think, although there are some key factors you can use to determine the best age for you to file that claim.

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How your claiming age affects your Social Security benefit

The Social Security Administration assigns everyone a full retirement age (FRA). That's when you become eligible for the full benefit you've earned based on your work history. For most people today, FRA is 67, though it was lower in the past.

You can sign up for benefits much earlier than this -- as early as 62 -- but the trade-off is smaller monthly checks. You reduce your benefit by 5/9 of 1% per month for up to 36 months of early claiming and then another 5/12 of 1% per month for every additional month of early claiming beyond that.

Someone with an FRA of 67 who applies right away at 62 reduces their benefit by 30%. Or, put another way, every month that they delay Social Security past their FRA grows their checks. This doesn't stop until you reach 70. Once you pass your FRA, your checks grow by 2/3 of 1% per month, or 8% per year. That means you could get 124% of your full benefit per month by waiting until then to apply.

What to consider when choosing your claiming age

There's no wrong answer when it comes to your Social Security claiming age, but there are ages that might be more beneficial than others. It largely comes down to two factors: your financial situation and your life expectancy.

If you're struggling financially and do not want to return to work or cannot do so, then it's really a no-brainer. It's better to sign up for Social Security early, even if you get a smaller lifetime benefit, than it is to take on debt you may not be able to pay back. If you don't want to sign up immediately, you might consider delaying benefits for a few months to a year before signing up so you can take advantage of some of the gains that come with delaying your checks.

When you have substantial savings, you have a bit more flexibility regarding when you sign up for Social Security. Then, it's largely down to life expectancy. Generally speaking, early claiming is better for those with shorter life expectancies, while delaying benefits carries a bigger reward for those with longer life expectancies. If you think you'll live into your 80s, delaying is probably the right way to go if you're trying to maximize your lifetime benefits.

The popularity of later claiming ages has risen over the past several decades as people live and sometimes work for longer than they used to. Yet early claiming remains popular, with roughly one-quarter of seniors applying at 62. So no matter which option you choose, you'll be in good company.

If you're still not sure which is right for you, consider opening a my Social Security account. There's a tool here that can help you estimate your benefit at various claiming ages. Choose some ages you're considering and multiply their monthly benefits by the number of months you expect to claim them to see which gives you the largest lifetime benefit. Whenever possible, choose the option that gives you the most money unless your health or finances force you to make a change.

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