This article previously appeared on MoneyRates.com.
Do you remember your first paycheck? If you looked closely at the stub, you may have observed — perhaps grudgingly — that the government had withheld some of your pay for something called Social Security.
It probably seemed it would be an eternity before you’d see that money again.
But now here you are, wondering whether it’s finally time to claim your Social Security retirement benefits.
Choosing when to begin drawing Social Security can be a complex decision, since many variables can impact the amount of money you’ll receive. An ill-considered move could cost you thousands.
While it’s challenging to select the right time to start collecting, it can be all too easy to choose the wrong time. If you answer “no” to any of the questions on the following checklist before applying for your benefits, you may be doing just that.
1. Have you reached your Full Retirement Age? Sixty-five is the age many Americans associate with retirement. But for Social Security’s purposes, Full Retirement Age varies with the year you were born.
People born in 1937 or before were considered at Full Retirement Age at 65; those born in 1938 reached the benchmark at 65 years and two months. Those born later must wait even longer. Workers born in 1960 or later, for instance, won’t reach Full Retirement Age until they’re 67.
Regardless of when you were born, you can begin collecting some Social Security benefits as early as age 62. But your monthly benefits will be permanently reduced if you begin drawing before your Full Retirement Age.
While there are circumstances in which it makes sense to take benefits before then —failing health, for instance — drawing benefits before your Full Retirement Age will reduce the amount of your monthly check, which can lead to significantly reduced benefits over the course of your retirement.
2. Have you compared your expected benefits and expenses? The Social Security Administration website has calculators that can estimate your expected retirement benefits. Once you’ve calculated what you might get each month from Social Security, add in what you think you’ll receive from your investments, pensions and other sources of retirement income.
Next, determine what expenses you’ll have in retirement. While you may enjoy some savings compared to your working years — the cost of commuting, for instance — you might pay more for other things.
For example, if you’re leaving an employer-funded health plan and enrolling in Medicare, you should research whether you’ll need to pay premiums for the coverage you desire. Medicare Part B, the medical insurance component of Medicare, requires a monthly premium of $104.90 in 2013.
Now, compare your anticipated retirement income and expenses. If your income is less than your expenses and the option to draw from savings each month isn’t attractive or possible, it may be wise to postpone filing to take advantage of Social Security’s delayed retirement credits. These credits can increase your monthly benefit by up to 8 percent for each year you wait to draw Social Security between Full Retirement Age and age 70.
3. Have you coordinated with your spouse? It may seem sensible for married couples to enter retirement together and begin drawing Social Security benefits at the same time. But there are ways couples can significantly increase their benefits if one or both of them is willing to work past Full Retirement Age.
Some couples take advantage of Social Security spousal benefits — the assistance offered to the qualifying husbands and wives of Social Security beneficiaries — by using what’s known as a “file-and-suspend” strategy.
This involves both spouses filing for Social Security benefits at Full Retirement Age and then suspending their benefits. This allows one of them to claim monthly spousal benefits as both of them continue to let their regular benefits grow through delayed retirement credits.
The beauty of the Social Security spousal benefit is that it can serve as a cost-free addition to the regular benefits the couple plans to claim in the future.
If both spouses are at Full Retirement Age but at least one of them is not yet eager to claim benefits, a spouse’s benefit may significantly increase the couple’s overall take.
4. Have you factored in former spouses? If you’re divorced, that marriage lasted at least 10 years and you meet other Social Security criteria, you may be eligible to claim your ex’s level of retirement benefits if it’s higher than yours.
A noteworthy example of this involves three of the four former wives of Johnny Carson. Because the entertainer’s first, third and fourth wives were each married to him for 10 years or more and none of them remarried, each was eligible to collect Carson’s level of benefits when they reached retirement age.
This is sometimes called a derivative benefit and claiming it doesn’t affect your former spouse’s benefits or the benefits that his or her current spouse can claim.
5. Have you considered your life expectancy? This is where Social Security planning can get especially tricky.
If you wish to maximize the overall amount of Social Security benefits you’ll receive, the best time to begin collecting depends on how long you will live.
For example, if you die at age 64, collecting benefits before your Full Retirement Age is the obvious way to maximize your take (since you won’t be alive at your Full Retirement Age to collect anything).
But if you take your benefits before your Full Retirement Age and live until 92, you’ll be receiving a reduced monthly benefit for 30 years. In that case, you likely would have gotten more overall by waiting until Full Retirement Age to start collecting.
In fact, you may have fared best by postponing the start of Social Security benefits until age 70, since you would have claimed a substantially larger monthly benefit over 22 years in that scenario.
If your parents lived into their 90s or later, you may want to be especially careful about drawing Social Security benefits at a younger age.
6. Have you decided you’re ready to stop working? Though this question appears toward the bottom of the list, it may be one of the most critical.
Even if you have taken all the previously noted concerns into account, you may still wish to delay your Social Security benefits if your job improves your life in ways other than income.
Not everyone is ready to retire to a beach at 66. If you enjoy your work and show no signs of failing health, waiting past Full Retirement Age for your Social Security benefits — and collecting those delayed retirement credits along the way — may be a wise strategy.
Even if you’re on the fence about continuing work, keep in mind that your Social Security benefits will be waiting anytime you change your mind. But if you decide to retire and later find you miss your work, your career may not be as easy to rekindle.
7. Have you gotten your papers in order? Once you’re certain that you’ve reached the right age to collect Social Security retirement benefits, it’s time to get your paperwork in order.
The Social Security website says you’ll need the following documents to start the process:
- Social Security card
- Birth certificate
- Proof of U.S. citizenship (if you were born outside of the U.S.)
- A copy of your U.S. military service papers if you served between 1957 and 1968 (having served during these years can earn you extra credits that have to be manually added to your record)
- A copy of your W2 and/or self-employment tax form for the previous year
You can apply for Social Security benefits online at the Social Security website, over the phone at 800-772-1213 or at your local Social Security office. (You can find the nearest location on the Social Security site.)
Ollie Geiger is a personal finance writer for MoneyRates.com.
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