Ask Stacy: The Right Time to Start Social Security Benefits

Most people get this decision wrong and miss out on thousands. Here’s what to consider before you apply.

Years ago, a reader named Linda wrote to me. Her husband had just turned 62 and wanted to start Social Security right away. She was upset.

“He says he wants his money before the government runs out,” she told me. “I told him he’s leaving thousands on the table. Tell him I’m right, Stacy.”

I told her she was probably right — but I also said the answer was not that simple. It almost never is.

Social Security is not built to reward people who file early or punish those who wait. The system is designed so that, if you live about an average lifespan, you end up collecting roughly the same amount either way.

File early, and you receive smaller checks for more years. File later, and you get larger checks for fewer years. Over time, the numbers often come out close.

The challenge is that nobody knows how long they will live. That means you have to make a permanent decision based on educated guesses about your health, family history, spouse, job situation and savings.

Many people still get it wrong. Social Security Administration data reported by Savvy Senior showed that a large share of men and women sign up at 62, even though that is often the least favorable age for claiming. Yet it remains a common choice.

Before you apply, here are six things worth weighing.

1. Learn your full retirement age

Your full retirement age, or FRA, is the point at which you can receive 100% of the benefit you earned. For anyone born in 1960 or later, that age is 67. For people born between 1955 and 1959, it falls somewhere between 66 and 67.

If you claim before FRA, your benefit is reduced permanently. The Social Security Administration says that if your FRA is 67 and you file at 62, you would receive about 70% of your full benefit — a 30% reduction for life.

If you wait beyond FRA, the opposite happens. The SSA increases your benefit by 8% per year until age 70, which is a guaranteed return that is hard to match elsewhere.

2. Compare the break-even point

The basic idea is simple: If you claim at 62 instead of 70, you usually need to live into your late 70s or early 80s before the total lifetime value evens out. If you live longer than that, waiting can pay off. If you die earlier, filing sooner may come out ahead.

Bankrate’s analysis estimated the break-even point between claiming at 62 and 70 at about age 78. Most retirement calculators can estimate this for your own situation, so it is worth using one.

3. Consider your health and family history

This is the uncomfortable part. If your parents both died in their 70s and you have a serious health condition, filing early may truly make sense. There is no prize for waiting until 70 and then collecting only a couple of checks.

On the other hand, if your grandmother lived to 96 and you are in excellent health in your mid-60s, you should be very cautious about claiming early. People routinely underestimate how long they may live.

Quick aside — much of the financial advice online comes from people who were not around for the last recession. I have been writing about money for more than 40 years. If you want dependable guidance, sign up for the free Money Talks Newsletter. It takes 10 seconds. No fluff. No spam.

4. Think about your spouse, especially if you earn more

This is where many claiming decisions go off track.

If you are the higher-earning spouse, your filing age helps determine the minimum level of your spouse’s future survivor benefit. Claim early and lock in a smaller benefit, and if you die first, your widow or widower may be stuck with that lower amount for the rest of their life.

For married couples, the usual advice is for the higher earner to wait as long as possible — even until 70 — while the lower earner may claim earlier if needed. That approach can help maximize lifetime income for the surviving spouse.

Spousal and survivor benefits include additional details, and our guide to Social Security rules most Americans get wrong explains several of the trickier ones.

5. Check the earnings test if you are still working

If you claim before your full retirement age and continue working, the SSA may withhold part of your benefit if your income goes above a certain limit. That money is not lost forever — it is credited back later — but it can be frustrating and often catches people off guard.

Once you reach FRA, the earnings test no longer applies. At that point, you can earn as much as you want.

6. Do not file out of fear

This is the part that worries me most. The Social Security trust funds are not about to disappear overnight. According to the program’s trustees, the surplus is currently projected to run out around 2032.

After that, payroll taxes would still be enough to pay about three-quarters of scheduled benefits unless Congress takes action — and Congress almost certainly will, because politicians who allow Social Security checks to be cut rarely keep their jobs.

Even so, fear is driving more claims. AARP, citing Urban Institute analysis, reported that a very large number of people filed for Social Security retirement benefits over a recent seven-month span, up significantly from the same period the year before.

Many of those applicants are giving up real money because they are afraid the system could collapse.

Do not be one of them. Claim because the math works for you, not because panic is pushing you.

The Social Security decision is one of the most important financial choices you will ever make. As any comparison of claiming at 62, 67 and 70 shows, the right answer depends on your circumstances.

And if you want to clear up more confusion, our list of Social Security myths that can cost you in retirement is worth reading.

Linda’s husband, by the way, eventually waited until 67. They are both still collecting checks that are more than 40% larger than the ones he wanted to start at 62. Linda was right.