After paying Social Security taxes throughout your career, retirement is the time to receive the benefits from it. And luckily so, considering Social Security accounts for many Americans’ primary retirement income source.
Because Social Security is so important, it’s essential to make sure you’re as informed as possible about when you should begin receiving your benefits. Here are four questions you should be able to answer before taking Social Security.
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1. How much will you need monthly in retirement?
Although it can be hard to say exactly how much you’ll need in retirement, it’s still important to have an idea of the amount before reaching retirement. If you don’t know where to start, a good method is using the 80% rule, which says you should aim to have 80% of your final working year’s income to maintain your current lifestyle.
If you plan to downsize your lifestyle, you can lower this percentage, and vice versa, but 80% is a good baseline to use. Once you know this amount, you should see how much you’ll be receiving in Social Security to get a grasp on the difference between the two.
You can get an idea of your monthly Social Security by accessing your earnings record on the Social Security website (SSA.gov).
2. What is your full retirement age?
Your full retirement age (FRA) — which is based on your birth year — is the age you’re eligible to receive your full Social Security monthly benefit.
| Birth Year | Full Retirement Age |
|---|---|
| 1943 to 1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or after | 67 |
Data source: Social Security Administration.
The earliest you can begin receiving benefits is age 62, but doing so will reduce them based on how far you are from your FRA. Benefits are reduced by five-ninths of 1% if you’re within 36 months of your FRA, and five-twelfths of 1% monthly for each month over month 36.
For example, if your FRA is 67 and you take benefits at 62, they’ll be reduced by 30%. If you’d receive $1,500 at your full retirement age, you’d receive $1,050 to begin, and your benefits would gradually increase until you reach your full retirement age. You can also delay your benefits past your FRA, increasing them by two-thirds of 1% for each month until you reach 70.
Regardless of when you take benefits, it’s important to know your full retirement age, so you can ensure you’re fully aware of the financial implications.
3. Will you be receiving spousal benefits?
Social Security spousal benefits are given to eligible spouses of people currently receiving Social Security retirement or disability benefits. If your spouse is currently receiving Social Security benefits, it’s essential to know whether you’re eligible for spousal benefits, which could be as much as 50% of your partner’s benefits.
Whether you’re eligible for spousal benefits depends on your own earnings record and how much you’d receive in benefits. If your own monthly benefits are higher than your spousal benefits, you’d receive that. If your spousal benefits would be higher, you’d receive that.
Spousal benefits are also reduced if your partner decides to receive benefits before their FRA. They’re reduced by 25/36 of 1% for each month within 36 months of their FRA, and five-twelfths of 1% per month over month 36. If your spouse’s FRA is 67 and they take benefits at age 62, for example, spousal benefits are reduced by 35%.
4. Will you be working while receiving benefits?
Taking Social Security benefits doesn’t mean you have to quit earning money elsewhere. You do, however, need to monitor just how much you make because it could affect your monthly benefits. Social Security uses a retirement earnings test (RET) if you receive benefits before your FRA and earn over a certain amount.
If you’ll be reaching your FRA in 2023, the most you can earn in the months leading up to it is $56,520. If you won’t reach your FRA in 2023 and take benefits early, the most you can earn is $21,240. Earning over the limit will reduce your benefits, but the reduced amount will be gradually added to your monthly benefits once you reach your FRA.
For example, let’s assume your FRA age was 67, and you decided to take benefits at 64 while earning over the allowed limit. If the RET lowered your yearly benefits by $3,000, Social Security would’ve withheld $9,000 over the three years until you reach age 67. Once you turn 67, Social Security will recalculate your monthly payments, increasing them in a way that would incrementally give you your $9,000 back.
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