Social Security Part 2: Reasons to File Early

Quick Summary:

  • While most articles talk about the benefits of delaying Social Security, there are still valid reasons to consider filing early
  • If you are still working full time you should wait till at least Full Retirement Age
  • Your health is a valid consideration for determining when to file
  • Your filing date is best determined not as an isolated decision but rather by looking at your entire financial picture

Social Security Basics

  • You can file to receive benefits in any month between the ages of 62-70.
  • Your “Full Retirement Age” for those born between 1943-1954 is age 66. If you were born after 1954, the Full Retirement Age starts to increase incrementally by a couple of months until it reaches age 67 for those born in 1960 or later.
  • The “Break-even Age” for benefits received is roughly age 81. This means if you file at any age between 62-70, you will receive approximately the same amount of money from Social Security by age 81.
  • If you file for benefits early, you receive a reduced payment for life. If you delay beyond Full Retirement Age, you receive an increased payment for life. At age 62, the reduction is about 25%. At age 70, the increase is about 32%.This reduction or increase happens incrementally every month before or after your Full Retirement Age. To keep the math simple, here’s an example with someone who has a Full Retirement Age benefit of $1,000/month:

Reasons to File Early

While most of the articles you find on Social Security planning talk about the virtues of waiting or delaying benefits, there are still a number of good reasons for filing prior to Full Retirement Age. The first question to ask yourself is whether you intend to continue working full-time. If you are still working, and have not yet reached Full Retirement Age, then it almost always makes sense not to file for benefits early.

Below are some good reasons and considerations for claiming benefits prior to Full Retirement Age. If more than one of these reasons apply to your situation, the stronger your argument to file early:

  • Early Retirement  You have retired early and Social Security benefits will significantly help you cover your regular monthly expenses. Your other sources of retirement income, i.e. a pension and/or retirement savings would not be sufficient on their own.
  • Health  Your health or family history indicate a shorter than average life expectancy. The “break-even” age for benefits received is around 81, so if you only lived into your 70’s, an earlier filing would end up producing more benefits.
  • Expenses  You expect your expenses to be higher in the early years of retirement. There is growing research to back this claim that retiree spending starts at a high point and then diminishes over the decades. If you intend to do more traveling and other high expense activities in the first years of retirement, but then scale back, this can be a consideration towards having the extra income source at an earlier age.
  • Unexpected Job Loss  You intended to continue working but lost your job or were forced into early retirement. This can be a particularly unsettling situation for a growing number of early retirees. All of a sudden you might need to start Social Security earlier than you intended to help meet your expenses. The “Undo Strategy” provides a little extra flexibility for those who will try to reenter the work force.

https://www.ssa.gov/planners/retire/withdrawal.html 

Social Security allows you one “do-over” within the first 12 months of claiming benefits. You would need to pay back all benefits you have received, however doing so would reset your ability to continue to delay benefits for higher payments at a later date. If you were fortunate to find a new job within 12 months of the unexpected layoff, this could be an attractive strategy.

Stay tuned for Part 3, where we will discuss some good reasons to consider filing for benefits after your Full Retirement Age.