As a senior, you get a lot of power over your Social Security income. Once you turn 62, you’ll have the option to claim benefits, and you can do so at any age past that point. But if you’re not careful, you could wind up making some very bad choices with regard to Social Security. Here are a few specific decisions you might sorely regret.
1. Claiming benefits too early
Your monthly Social Security benefit is determined by taking your average monthly wage, indexed for inflation, over your 35 highest-paid years in the workforce and applying a special formula to that number. You’re entitled to that monthly benefit upon reaching full retirement age (FRA), but you won’t get there until you turn 66, 67, or 66 and a certain number of months (it all depends on your exact year of birth).
Of course, we just said that you can start collecting Social Security as soon as you turn 62, but for each month you file ahead of FRA, you’ll reduce your benefits in the process. That reduction will then remain in effect for the rest of your life unless you undo your filing within a year and repay all of the money you collected.
You may not think that filing for benefits at 62 is problematic, but consider this: If Social Security winds up being your main source of retirement income, you may find that you really can’t afford that hit on benefits. And if you come to that conclusion past the point when you can undo your filing, you’ll be stuck with a lower monthly benefit for life — not a great situation.
2. Delaying benefits when your health is poor
Just as you have the option to claim Social Security before FRA, you also can delay your filing past FRA and boost your monthly income in the process. Your monthly benefit will increase by 8% for each year you hold off on filing for Social Security past FRA. Once you turn 70, the opportunity to boost your monthly benefit ends, but if your FRA is 67 and you wait three years, you’ll snag a 24% increase.
That’s a smart thing to do in theory, but only if your health is decent. If your health is poor and you’re unlikely to live a long life, then you’re actually better off filing for benefits earlier on — perhaps as early as 62. Remember, while delaying benefits will increase the amount of money you collect each month, it won’t necessarily boost the amount you collect in your lifetime, and it’s just as important to focus on the latter as it is on the former.
3. Filing early when you have a spouse to consider
If you’re single and in poor health, then claiming Social Security on the early side could pay off in your lifetime, as we just discussed. If you’re married, however, that changes everything. The reason? Once you pass away, your spouse will be entitled to survivors benefits equal to the amount you collect each month.
If you lower your monthly benefit by filing early, you’ll also leave your spouse with less monthly income for life. And that’s a very bad thing if you expect your spouse to outlive you by many years.
Picking an age to claim Social Security is not an easy thing to do, especially when there are so many variables and unknowns involved. Before you rush into a decision you wind up regretting, keep the above points in mind. They could help you avoid a mistake you’d otherwise kick yourself for.