Should You File for Social Security This Year?

Written By: Brian Ellenbecker, CFP®, EA, CPWA®, CIMA®, CLTC®

Deciding when to start Social Security is one of the most important retirement decisions you’ll make. For many people, the decision can be more complicated than they initially thought, as multiple factors can come into play. While you can begin benefits as early as age 62, the right time to file depends on your income needs, health, family situation and overall financial plan. Here are a few key factors to consider as you decide whether this is the year to file.

Your Age and Benefit Amount

Early filing (age 62 – Full Retirement Age) results in a permanently reduced benefit. Your benefit is reduced between 5% to 6.67% for each year you file prior to your Full Retirement Age.

Full Retirement Age (FRA) for someone born in 1960 or later is age 67. This is the age at which you can receive 100% of your benefit.

Delaying past FRA (up to age 70) increases your benefit by 8% per year.

If you don’t need the income right away and expect to live into your 80’s or beyond, waiting can significantly boost lifetime benefits. However, you also want to factor in your overall financial picture, including portfolio withdrawals, taxes, expenses and your health, to name a few. The best way to do this is to run a financial plan scenario with your financial advisor to ensure you’re looking at the whole picture.

Are You Still Working?

If you file before FRA and continue working, your benefits may be reduced if your income exceeds the annual limit. While those reductions won’t last forever, they can affect cash flow in the early years. It also introduces an additional administrative burden of having to report your anticipated income to the Social Security Administration (SSA) and provide updates throughout the year if you find your actual income strays from the estimate you provided. For many still-employed individuals, waiting until at least FRA may make more sense.

Health and Longevity Considerations

If you’re in good health with a family history of longevity, delaying benefits can provide higher lifetime income and better protection against outliving your savings. On the other hand, if health concerns suggest a shorter retirement horizon, filing earlier may be appropriate.

Spousal and Survivor Benefits

Your claiming decision doesn’t just affect you – it can impact your spouse, as well. Higher benefits can mean larger spousal benefits and increased survivor benefits for a surviving spouse. For couples, coordinating when each spouse files can add meaningful value over time.

Taxes and Cash Flow

Social Security benefits may be taxable depending on your total income. Filing too early, especially while drawing from other income sources, can increase your tax bill. A coordinated strategy that considers withdrawals from retirement accounts, pensions, employer equity awards, proceeds from the sale of a business, part-time employment income, etc., can help manage taxes more efficiently.

Filing for Social Security is a long-term decision with lasting consequences. For some, this may be the right year to start benefits. For others, waiting even a few years can significantly improve retirement security.

Before filing, it’s worth stepping back and asking how Social Security fits into your financial plan. Reach out to your Shakespeare Financial Advisor to help you understand how filing for Social Security at different ages might impact your plan.