Dear Carrie: My younger brother and I (he’s in his mid-50s, and I’m in my early 60s) disagree about whether it makes sense to file for Social Security before the age of 70. Could you shed some light? — A Reader
Dear Reader: This is a question I hear over and over again. And it’s not surprising. It’s human nature to want to get that Social Security check as soon as possible. But though collecting sooner rather than later is tempting — and may very well be the right move for some — your monthly benefit will be higher if you can be patient.
Top line, if you collect at the first possible opportunity — at age 62 — your benefits will be permanently reduced by approximately 25 percent. For every year you wait past your full retirement age (66 or 67, depending on when you were born) until age 70, your benefit goes up 8 percent. Just looking at the percentages would suggest that waiting is the best choice.
Though I generally agree with waiting, when to collect is also based on a lot of personal factors — from your financial need to your physical well-being. So you and your brother may justifiably have different opinions because each of you will have different circumstances. But for the sake of your discussion, here are some things you can both do to help you reach your own decision.
Understand How Benefits Are
Your benefits are based on the earnings on which you paid Social Security taxes. The more you’ve earned over the years — up to a maximum amount ($118,500 in 2015) — the higher your benefit. Sounds simple, but the calculation is a bit more complex. The actual monthly amount you receive is based on your average indexed monthly earnings in your 35 highest-earning years after age 21. These earnings are tallied at age 62 and indexed for inflation, so past earnings are converted into current dollars. This 35-year mark is important because if you work fewer years, the missing years are counted as zero, bringing your average — and your benefit — down.
You each should start by looking at your earnings history, as well as your projected future earnings. It could be that the latter part of your career will yield the highest earnings — and boost your benefit — which would be a point in favor of waiting.
Review Your Social Security Statement
Your Social Security statement will show your complete earnings record, as well as your estimated monthly benefit at age 62, at full retirement age and at age 70. The numbers should speak for themselves in terms of how your monthly benefit will go up the longer you wait to collect.
The Social Security Administration mails a paper statement every year to all workers who are 60 or older and not yet receiving benefits. This past September, the SSA also started mailing statements every five years to workers between ages 25 and 60. Plus, you can get your statement online by creating a “my Social Security account” at http://www.ssa.gov.
Think About Life Expectancy
The size of your monthly benefit is one factor to consider; how long you’ll collect it is another. Generally speaking, if you begin taking Social Security early, you get smaller checks for a longer period of time. Take it later and you get bigger checks for a shorter period of time. Does it make a real difference in the amount you collect? That depends on your life span. Live long enough and it eventually evens out.
For example, let’s say you’re each entitled to a $1,000 monthly benefit at full retirement age. Your brother starts taking his benefits at age 66. You wait until age 70, by which time your monthly benefit has gone up to $1,320. If you both live to age 83, you’ll each have collected approximately the same lifetime benefit — $204,000 for your brother and $205,920 for you. If you both live longer, you will collect more than your brother. The catch, of course, is that you can’t predict the future.
Get More Personal
These broad numbers can give you a basis for your decision, but there’s still more to think about. For instance, will you continue to work after you begin receiving benefits? If so, your benefits could be reduced or taxed. Are both you and your spouse eligible to collect? It could make sense for one of you to file early and the other later. Are survivor benefits a concern? The longer you wait the more a surviving spouse will get.
As you can see, there’s no single right answer. However, here are some general guidelines that may help you decide:
Consider Taking Benefits Early If:
–You are not working and can’t make ends meet.
–You’re in poor health.
–You’re the lower-earning spouse and your spouse can wait to file for a higher benefit.
Consider Taking Benefits Later If:
–You are still working and make enough to impact the taxability of your Social Security benefits.
–You’re in good health and longevity runs in your family.
–You are the higher-earning spouse and want to be sure your surviving spouse gets the highest benefit possible.
Ultimately, you and your brother don’t have to agree on the best time to file for benefits. The important thing is that you each make the timing decision that’s right for you.
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER ™ is president of the Charles Schwab Foundation and author of “It Pays to Talk.” You can e-mail Carrie at email@example.com.