Q: I’ve heard a lot of confusing advice on when to start Social Security. I’m divorced, single, and I turn 63 this year. I know that by waiting, my benefit will grow, but I’m not sure how much longer I will have my job. I need to augment my income now, especially to afford my health insurance costs. I don’t have much in retirement savings. What are my best options?
A: Unless you are in poor health and need money to put food on the table or keep a roof over your head, these days it makes sense to delay starting benefits as long as you can. That’s especially true if you’re single and have limited retirement savings. If you claim Social Security too early, you could set yourself up for a reduced standard of living for the rest of your life.
By delaying the start of your benefit until your full retirement age of 66, your benefit will be 25% higher. Delay until age 70, and your Social Security payment will be 65% higher than if you start it at age 63. This can make a huge difference in the monthly income you receive. For example, if entitled to a monthly benefit of $1,000 at age 66, you would receive only $800 per month at age 63. And if you can delay until age 70 you could take a retirement benefit of $1,320.
Working longer, especially if you are earning more now than you did in jobs in the past, can also help increase your benefit because the Social Security Administration uses your highest 35 years of earnings to calculate your initial retirement amount. If you’ve worked less than 35 years, then the extra years of work will help fill in the earning gaps in your record.
Based on your age, you potentially may be able to use a claiming strategy at your full retirement age (66) that could provide you with a divorced spousal benefit, while you wait for your own benefit to grow. Once you have reached full retirement age you can choose to receive only the divorced spouse’s benefit and delay receiving retirement benefits based on your own work record until a later date or when you turn age 70.
To receive benefits on your ex-spouse’s record, you must be unmarried, and your ex-spouse must be entitled to a Social Security retirement or disability benefit. But don’t try to take it sooner than age 66, or you will lock in a permanent reduction for your own retirement benefit, even if you take it later.
If you start benefits sooner than age 66 and continue to work, you are subject to Social Security earnings restriction rules. Earn more than the annual exempt amount and Social Security will withhold some or all of your earnings. In addition, once you start benefits, your income may subject a portion of your Social Security benefits to tax.
For more information, visit the website of the National Academy of Social Insurance at www.NASI.org and download a copy of “When Should I Take Social Security Benefits? ”. Or watch a video “It Pays To Wait”.