Social Security: How Your Filing Age Affects Your Benefits

One nice thing about Social Security is that older Americans get to choose when to take retirement benefits. You can sign up for Social Security at any point in time once you turn 62. But it's important to understand how your filing age ultimately affects your benefits before locking in your decision.

Your filing age matters

On a basic level, the monthly Social Security benefit you're entitled to in retirement is based on your earnings history -- specifically, the amount of money you made during your 35 highest-paid years in the labor force. From there, the age you choose to claim benefits at will either raise those monthly payments, shrink them, or leave them as is.

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If you decide to first take benefits at full retirement age, which is 67 for anyone born in 1960 or later, you'll get your exact monthly Social Security payment without an increase or a reduction. The average amount of money retired workers on Social Security collect today is about $2,000. So if the benefit you're entitled to each month based on your wage history is $2,000, at full retirement age, you'll get -- wait for it -- $2,000.

However, you can take benefits starting at 62. And filing at any point before full retirement age will cause a permanent reduction to your monthly Social Security checks. In our example, signing up at 62 will cause you to lose about 30% of your benefits, leaving you with a monthly payday of $1,400.

There's also the option to delay your Social Security claim past full retirement for boosted benefits. Once you turn 70, your benefits can no longer grow. In our example, claiming Social Security at 70 will increase your payments by 24%, leaving you with a monthly check worth $2,480.

Now let's look at both ends of the spectrum. In this example, your filing age will determine whether you receive $1,400 a month in Social Security or $2,480 or something in the middle. There's more than a $1,000 difference between the high end and the low end. That's huge. So it's important to put a lot of thought into your claiming decision before moving forward.

How to know when to claim Social Security

Now that you understand the difference in filing for Social Security at one age versus another, you can try to narrow down the right age to sign up. To that end, you need to look at two things -- your remaining income sources, and your spending needs.

For the first, assess all of the income you expect to have available in retirement. That could include a pension, earnings from a part-time job you intend to hold down, or withdrawals from an IRA or 401(k) plan.

Next, figure out what sort of lifestyle you'll be happy with. Downsizing might help you shrink your costs, so if that's part of your plan, it might take some pressure off of Social Security, making an early filing more feasible.

On the flipside, if you spent most of your life in a large city and want to stay, your costs could be high -- especially if enjoying nightlife is important to you. That could make the case for a delayed Social Security filing.

All told, it's a tough decision, so it's a good idea to run different income scenarios based on the numbers that are specific to you. The more thorough you are, the more likely you are to be happy with whatever age you land on for your Social Security claim.

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