When is the Right Time to File for Social Security Retirement?

As you know that you can claim Social Security benefits at the age of 62 – but should you?

Many of my clients will ask a question about retirement planning, and while I am not a financial planner, I do in fact have some things to tell each client as they head into retirement. There is not one single answer for every individual, and there are indeed several different things that seem to go into whether someone should delay claiming their Social Security retirement. However, before you head down to your local Social Security office on the day you turn 62, you should decide how long it will be until you break even on your benefits.

As a lawyer who handles disability cases, often my clients are consulting me or have hired me because they already have failing health. So if someone does not think that they will live long enough to recover the money they will get by delaying claim past your 62nd birthday, then starting on one's Social Security as soon as possible probably is the smartest move to maximize the total benefits received during one's entire retirement. While waiting for your check to begin entitles you to earn delayed retirement credits, and thus a larger monthly check, it also means that you will miss out on many years of money that you will miss by delaying your check.

I recently read an article from a very educated professor from Stanford University who argued for delaying retirement as long as possible. This is because the longer you wait then the higher the monthly check will be. A retirement check from Social Security provides a guaranteed source of income for life, which makes waiting a little longer to maximize benefits make sense. Uncle Sam has been there every check of your life taking a bite out of it, and now it is your turn to have the Eagle deposit something into your bank account.

So in order for this to make financial sense, then you will need to collect this higher monthly income for several years to make up for all those months that you will miss collecting your benefit check. Eventually you will reach your what I call your break-even point. To decide whether it makes sense to delay, I think that everyone should know exactly how to calculate this break-even point. This will give you a better idea of how many years it will be before the delaying or your retirements actually benefits you to make sure a delay.

To figure out how long it takes for you to break even by delaying Social Security benefits, calculate how much money you will receive over the years if you claim early, then divide this amount by the higher monthly benefits that you will receive if you delay the Social Security retirement check.

The Social Security Administration uses a formula to calculate your standard benefit amount based on your average wages over 35 years, adjusted for inflation. If you would receive $1,050 monthly at 62, your annual income would be $12,600. If you claim at 62 instead of waiting until 67, you will receive $63,000 over the first five years, which are checks that you would not have received had you delayed taking your check at age 62. Your monthly benefit, however, is 30 percent lower than it would've been had you waited. If you claimed at 67 and received $1,500 per month, your annual income would be $5,400 higher. To make up for the $63,000 missed, you will need to live longer and receive this extra income for 11.7 years ($63,000/$5,400). Therefore this person’s “break-even point” will happen several months after their 78th birthday. That is 11.7 years after your 67th birthday when benefits started coming.

The math differs depending on your specific benefits and how early you claim or how long you delay. The chart below provides an estimate of when you'd hit your break-even point at different ages, assuming a $1,500 benefit at a full retirement age of 67.

So, should you delay claiming benefits? Ultimately, this is your decision and many factors will go into whether you should wait to claim Social Security or take it as soon as possible. However, before you file with your local Social Security office, you can find out how long it will take you to break even.