Social Security

Social Security — Applying for Social Security? It’s All In the Timing


Social Security is a prime retirement income source for Americans. Nine out of 10 people age 65 and older receive Social Security benefits. Among single retirees, 73 percent rely on Social Security for 50 percent or more of their income.1 Social Security could play a large role in your overall retirement income. Make sure you understand how the timing of your benefits application will affect the amount you receive.

How much will you get?

Social Security benefits are determined based on the number of credits, or quarters, you have accumulated during your working life. Generally, you need 40 credits in order to qualify for Social Security benefits. Your benefit amount is based on an average of your 35 highest earnings years over your entire working career. If you do not have 35 years of work, non-working years will be figured in at zero income. This has the potential to greatly reduce your Social Security benefit. You can use the Retirement Estimator on the Social Security website to get a benefit estimate. Your Social Security payments may be indexed for inflation over time.

Typically, the longer you wait to receive benefits, the higher your monthly payment.

A sliding scale for monthly benefits

For monthly benefits, the general rule is: apply early, get less; apply later, get more. You can apply for Social Security starting at age 62 or wait until age 70. (Somewhere between 65 and 70 is your “full retirement age” which is based on your birth year.) The longer you wait, the larger your monthly benefit payment. Someone age 62 today earning $50,000 a year might get about $1,000 a month if starting the benefit this year, but about $1,900 a month by waiting until age 70 to apply for benefits.2 That sounds like a big difference, when you take lifespan into account, a 62- year old person may collect benefits longer than a 70-year old person, so total lifetime benefits are difficult to calculate.

Assessing application timing

Here are a few things to consider before deciding when to turn on the Social Security spigot:

  • Are you still working? — Generally, you should wait until your full retirement age to take Social Security if you’re still earning income. If you start receiving your benefit early, an earnings penalty will reduce your benefits for each dollar you earn above $14,640 (in 2012).
  • How long do you expect to live? — Tough question to answer. If you’re in excellent health, and you have more than a few 90-year old relatives, consider waiting (if you don’t need the money) so you get a larger monthly benefits. If you’re in poor health, you might consider starting earlier to maximize the number of years you receive checks.
  • Married or single? — Social Security has favorable rules for married couples. If one partner dies, the survivor can claim the deceased spouse’s larger check instead of his or her own. One partner (usually the higher earning one) might want to delay benefits as long as possible so the other partner can receive a bigger check later. But the options for couples are much more varied than this, with all kinds of strategies available, so you should consult with a financial professional.

Reach out for guidance

On the surface, Social Security seems like a fairly straightforward system, but it’s actually quite complex. Making the wrong decision at the wrong time could cost a lot of money in the long run. Consider discussing your options with a tax advisor or a financial professional before making a decision so you can maximize what’s coming to you.

1 Source: Social Security Administration, June 2011
2 Calculation are estimates based on 2011 benefit rates. They are not meant to predict future Social Security benefits.