This Decision Will Make the Biggest Impact On Your Social Security Benefits

Once you retire, you’ll ideally have multiple income streams at your disposal — savings, investments, and maybe even a part-time job. But chances are, Social Security will be a significant source of income for you in retirement. And for this reason, it’s important to try to get as much money out of it as possible.

One decision on your part could have a huge impact on your monthly Social Security checks. Here’s what it is, and how to make the right call.

The importance of claiming benefits at the right age

The way the Social Security Administration calculates your monthly retirement benefits is a bit complex. In a nutshell, it takes your 35 highest years of wages into account, all the while adjusting earlier wages for inflation.

Based on that, you’re eligible for your monthly benefit without a reduction once you reach full retirement age, or FRA. That age is 67 for anyone born in 1960 or later.

However, there’s a range of choices for claiming Social Security. The earliest age you can sign up is 62. For each month you file for benefits ahead of FRA, though, those monthly checks shrink on a permanent basis.

There’s also the option to delay your Social Security claim past FRA for boosted benefits. That option runs out at age 70, though. What this means is that your monthly Social Security benefits could be a lot smaller or larger depending on your filing age.

Let’s say you’re eligible for a $2,000 monthly benefit at an FRA of 67. This is roughly in line with the average monthly benefit retired workers collect today.

If you file for Social Security at 62, that monthly benefit will shrink to $1,400. If you wait until age 70, it will increase to $2,480. So all told, that’s a monthly difference of $1,080 in income, or a difference of $12,960 a year. That’s not insignificant.

It’s also why you need to claim Social Security carefully. Filing at the wrong age could leave you with less money — either on a monthly basis or a lifetime basis.

How to decide when to claim Social Security

You might assume that it makes sense to claim Social Security at an age when you’ll get the most money per month — age 70. But that’s not a given. Though claiming Social Security at 70 might boost your benefits on a monthly basis, if you don’t live a very long life, you could end up with a smaller lifetime payday.

A better idea is to decide when to claim Social Security based on your life expectancy, but also, based on your personal needs. If you have a job that’s harming your health and you need to quit, it could make sense to claim Social Security at 62 to escape a bad work situation — even if it means reducing your benefits for life.

If you’re struggling with the decision, which is understandable, a financial advisor may be able to help. An advisor can help you weigh the pros and cons of different filing ages so you’re able to arrive at a choice you’re comfortable with.