Have you been wondering when to apply for Social Security benefits? And what impact it might have to apply at age 62 vs age 66 or later?
Many soon-to-be retirees agonize over the question of when to apply for Social Security. You can receive benefits as early as age 62. However, you’ll want to wait to fully understand that when you file for Social Security early, it can permanently impact the level of monthly benefit you will be paid.
The Earliest You Can File for Social Security
If you are filing for traditional Social Security retirement benefits, and not disability or widow’s benefits, the earliest age that you will be eligible to receive benefits is at age 62.
You can file for those benefits as early as age 61 and 9 months. Your first check will arrive in the month after you attain age 62.
Here’s where it gets tricky. You don’t attain age 62, until you have been age 62 for an entire calendar month. So, if your birthday is June 23rd, you will be eligible in the first full month afterward, which is July, and your first actual payment will arrive the following month, in August.
It is generally recommended that you should apply for benefits three months before you wish to begin receiving benefits.
Understanding Your Full Retirement Age
Though you can begin benefits as early as age 62, you need to understand how filing earlier than your Full Retirement Age (FRA) will reduce your monthly benefit.
You will reach your Full Retirement Age will be based upon the year you were born.
People born between 1943 – 1954 attain their FRA when they turn 66. If you were born later than this, Social Security adds two months for every year later that you were born. So, for example, someone born in 1955 will attain their FRA at 66 and two months, while someone born in 1956 will attain FRA at 66 and four months.
Anyone born in 1960 or later will attain their FRA at age 67.
The sliding scale is based on some legislation that was passed years ago to try to help Social Security stay in good financial shape. By changing the age at which beneficiaries reach their FRA, this legislation helped to extend the number of future years that Social Security would be able to continue paying out benefits.
The Social Security website offers a number of great online calculators to help you determine your benefit level based upon when you file. The main thing to keep in mind is that the earlier you file, the lower your monthly check will be.
Benefit Reductions Are Permanent
There are many people who decide to file for Social Security as early as they can possibly receive it, even though they know this reduces their monthly benefit. However, be aware that this benefit reduction is permanent.
For example, someone who reaches their FRA at age 67 can file for benefits as early as age 62, but their benefit will be permanently reduced by 30%.
Consider this example with actual figures. Based on her earnings record, Mary is eligible for a $2000 monthly benefit at age 67 when she will reach her FRA. However, Mary, retired early and like many retirees, she could really use the extra income at age 62 to help her make ends meet.
When she files for Social Security benefits to begin at age 62, her monthly benefit will be permanently adjusted down to $1400/month.
There are other factors that might also impact a person’s benefit amount, including a spouse’s benefit or even an ex-spouse’s benefit if he/she was married to that spouse for 10 years or more. For purposes of this post, though, we are looking at just the basics of what you can earn based on your own work record.
Delayed Retirement Benefit Increases Are Also Permanent
Now let’s consider on the other hand that Mary has the means to wait until age 70 to file for her benefits. She will earn 8% per year for every year that she waits to file, so this results in a permanent 24% increase in her monthly benefits.
Since her benefit at her FRA age would have been $2000, Mary will now take home $2,480/month for the rest of her life.
This is a significant increase and may be well worth waiting for if Mary has the means to do so. We recommend discussing your Social Security benefits with your financial advisor to determine what age you will file at based on your own personal needs, budget, and any other income from retirement savings.
Another consideration in deciding when to file should be your spouse. If you have a higher benefit check and you pass away, your spouse will be able to collect 100% of the benefit you were taking home or eligible to take home upon your spouse’s full retirement age.
So, if you delay enrollment until age 70 before filing for Social Security, you are also increasing the amount that your spouse (or minor children) can someday receive if you pass away first. We call this maximizing your Social Security benefits for your family and it should be a consideration in your retirement strategy.
Lastly, waiting beyond age 70 will not increase your benefits any further, so plan to file no later than age 70.
Current Earnings Can Also Impact Your Benefits
Another consideration in when to apply for Social Security is whether you currently have any income due to a full-time or part-time job. Many people work well into their 60’s (and 70’s) these days, and Social Security will only allow you to earn so much per year before they begin withholding benefits.
In 2020, you can earn up to $18,240/year in the years before you reach your FRA. If you go over this amount, Social Security can withhold $1 in benefits for every $2 that you go over the limit.
The allowed annual earnings go up considerably during the year of your FRA. In 2020, you can earn up to $48,600 in the months before you reach your FRA. If you go over that limit, they will withhold $1 for every $3 earned.
One good thing is that you don’t permanently lose these dollars. Instead, Social Security re-factors them into your future benefits. Also, once you reach your FRA, there is no longer any annual earnings test. You can earn as much income as you like and still receive your full monthly benefit check.
How Many Months in Advance Should You Apply for Social Security
Once you determine when you plan to file for Social Security, you can then decide when to actually complete the application. If you are turning 62, the earliest you can apply will be 3 months prior to your birthday month. If you are older than 62, you should apply four months before you expect to get your first benefits.
How to Apply for Social Security
For many years it was necessary to go down to the Social security office in person to file for benefits. Today, you can still file in person, but you also have other options.
You can call Social Security at 1-800-772-1213 to request an application. Or, even easier, you can apply for your retirement benefits (and Medicare, by the way) at www.ssa.gov.
During your application, Social Security will gather a considerable amount of information about you. This may include the birth dates and marriage dates for you and your spouse. You may need to present your original documents such as a marriage license, birth certificates, and tax returns.
Bring in your W-2 for the last couple of years and you’ll also want your bank account information so that you can set up direct deposit of your benefits.
One way that you can be ultra-prepared for your Social Security application is to review your earnings records every year while you are still working. Individuals can sign up for an account at MySocialSecurity.gov. You should log in to your account every year and review your earnings history because eventually your benefit will be determined by the top 35 years of annual earnings during your lifetime.
Sometimes, though, work records don’t get matched to the right person, and so you could show a year of $0 earnings even when you know you did work that year. Logging into your MySocialSecurity account each year to review this will help you to correct any errors as you go along, instead of trying to deal with them many years after you discover an error in the earnings record.
Don’t Forget About the Medicare Deduction
One last thing to consider when determining when to apply for Social Security is your Medicare premium. People eligible for Medicare will see their Part B premiums deducted monthly from their Social Security check.
Every year here at Boomer Benefits we meet hundreds of retirees who are turning 65 and getting ready to sign up for Medicare. Yet they are completely unaware that Medicare isn’t free. In fact, in 2020, the average Medicare beneficiary will pay $144.60/month for Part B.
Considering that the average Social Security check is around $1400/month, you can see that your Medicare Part B premium could be a full 10% of your monthly retirement income benefits. Consider also your Medicare benefits only cover about 80% of your retirement healthcare costs. Most beneficiaries sign up for Medicare supplement coverage and also a Part D drug plan, both of which will cost additional premiums.
If you are turning 65 and this concerns you, you can consider waiting an extra year or two to file for Social Security so that you can earn the delayed retirement credits that will increase your monthly benefits.
Do you need help with figuring out your costs for Medicare and Medicare Supplement coverage? Give us a call here at Boomer Benefits and we can help: 817-249-8600