Social Security Strategies – When Should You Collect Your Benefit?

Authored by Taylor Warren, CFP^®

As you approach retirement age, one of the major considerations of your financial planning will be when to file for your Social Security benefit. With various eligibility ages and potential strategies available, understanding the rules around Social Security can have a significant impact on your financial future. In this blog, we’ll explore the ins and outs of Social Security, the implications of claiming early versus delaying benefits, and how consulting with a financial planner can help optimize your overall financial strategy.

Understanding Social Security Eligibility Ages

Social Security is a safety net for retirees, providing financial support based on your earnings history. You can start claiming benefits as early as age 62, but doing so comes with penalties. The full retirement age (FRA) varies based on your birth year; for many, it falls between 66 and 67. If you delay claiming beyond your FRA, your benefits increase by a certain percentage each year until you reach age 70.

Claiming Early vs. Delaying Benefits

Claiming Social Security benefits early can be tempting, especially if you’re eager to access funds. However, it’s crucial to understand that claiming benefits before your FRA results in a permanent reduction of your monthly payments—up to 30% if you claim at 62. For instance, if your full retirement benefit is $1,500 per month, claiming at 62 could reduce your benefit to about $1,050.

On the other hand, delaying your benefits can result in an increase of up to 8% per year, depending on how long you wait, resulting in a potentially much larger monthly payment once you do claim. For instance, delaying benefits until age 70 could increase your benefit to approximately $1,980, assuming an 8% increase each year.

Subjective Break-Even Age

Every individual’s financial situation is unique, making the break-even age—when the total amount received from early versus delayed benefits becomes equal—subjective. Factors such as health status, life expectancy, financial needs, and other income sources all play a role in determining your personal break-even point.

For some, claiming early might be the right choice due to immediate financial needs or health concerns. For others, waiting may provide long-term financial security, particularly if they have other sources of retirement income or if they anticipate living a long life.

Cost of Living Adjustments and Compound Interest

Social Security benefits are adjusted for inflation through Cost-of-Living Adjustments (COLA), ensuring that your purchasing power remains relatively stable over time. Delaying your benefits not only increases your monthly payout but allows for the accumulation of COLA adjustments during the waiting period. This means that if you delay, you not only gain a higher base benefit but also benefit from compounding increases over time, enhancing your benefit over a longer period.

Employment While Collecting Your Benefit? Consider the Taxes

When planning to collect Social Security benefits while continuing to work, it’s crucial to understand how taxes may affect your benefits. If you claim Social Security before your full retirement age and earn above a certain threshold (currently $23,400 for 2025), you may face a reduction in your benefits—$1 for every $2 earned over the limit. Moreover, even if you reach full retirement age, your benefits could still be subject to federal income tax depending on your combined income (your adjusted gross income plus nontaxable interest and half of your Social Security benefits). This tax consideration can impact your overall retirement strategy, making it essential to evaluate your earnings, benefits, and tax implications when planning your financial future.

Integrating Social Security into Your Financial Plan

It’s essential to consider your entire financial picture when deciding when to claim Social Security. This includes other income sources, such as pensions, retirement accounts, and investments. A well-rounded financial plan will help you determine the best time to claim benefits based on your cash flow needs, tax implications, and overall retirement strategy.

For instance, if you have significant assets and can afford to claim benefits early, doing so might be advantageous. Conversely, if you rely heavily on Social Security for your retirement income, and have longevity in your family, claiming later might be necessary.

Considering Spousal Impact

Deciding when to claim Social Security isn’t just about you; it can significantly affect your spouse as well. If you pass away, your spouse may be eligible for survivor benefits based on your higher delayed benefit. Thus, delaying your benefits can lead to increased financial security for your spouse in the long run. Couples should carefully evaluate how their claiming strategies will impact each other and their overall financial future.

The Importance of Consulting a Financial Planner

Navigating the complexities of Social Security filing strategies can be daunting. With the stakes being high, consulting with a financial planner can provide invaluable insights tailored to your specific situation. A financial planner can help you evaluate your options, consider tax implications, and create a comprehensive strategy that aligns with your goals, lifestyle, and family considerations.

In conclusion, understanding Social Security benefit filing strategies is essential for optimizing your retirement income. By weighing the pros and cons of claiming early versus delaying benefits, considering your break-even age, and incorporating your overall financial plan, you can make an informed decision that helps secure your financial future. Don’t hesitate to reach out to a financial planner who can guide you through this critical process and help you achieve peace of mind as you approach retirement.

Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.

Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Prior to making an investment decision, please consult with your financial advisor about your individual situation.