For those who have paid into the system, Social Security promises to provide a reliable source of income during your senior years. However, how much you receive each month depends on exactly when you retire.
While a person needs to wait until his or her full retirement age that would be 66 for those born between 1943 and 1954 to receive full benefits, the government allows those as young as 62 to file for Social Security. In exchange for early benefits, a senior agrees to receive a reduced monthly amount for the rest of his or her life.
Cecilia Beach Brown, a certified financial planner in Annapolis, Maryland, points out that Social Security benefits can be reduced by as much as 7 to 8 percent for each year a person files early. “I can’t think of a single investment offering that type of return on an annual basis,” she says, noting that even if seniors took the money early and invested it, they might end up with fewer dollars than they could receive by waiting until their full retirement age to take benefits.
According to Brown and other financial experts, most people will likely come out ahead by waiting until their full retirement age or beyond to file for Social Security. However, there are three situations in which filing early can make sense.
1. You can coordinate your benefits with a spouse.
“The biggest mistake I see is couples who look at [Social Security] in terms of one life instead of two lives,” Brown says.
Rather than make filing decisions independently, couples should consider their Social Security benefits jointly. If both spouses are eligible for benefits, it might make sense for one spouse to file early while the other spouse waits until his or her full retirement age or even later to file for benefits. Then, when one spouse dies, the surviving spouse will, in most cases, continue to receive the larger of the two amounts.
“There are a number of factors that go into these decisions,” Brown says. “I think the biggest thing is people need to do the math and take account of the cost of living.”