Social Security benefits are a crucial component of retirement planning for federal employees. However, deciding when to claim these benefits is not always straightforward since there are several factors to consider, such as your financial situation, health status, and retirement goals.
While some Feds may choose to claim Social Security benefits as early as age 62, others may wait until their full retirement age or even age 70 to maximize their monthly payments. So, this week we’ll explore different scenarios to help you determine the best strategy for you.
Before diving in, let’s ensure we’re all on the same page. The following are key points to understand about Social Security benefits:
When Can You Start Collecting Social Security: As previously mentioned, you can collect benefits as early as age 62. However, if you claim your benefits at 62, they will be permanently reduced by roughly 6% a year for every year you’re under your Full Retirement Age (FRA).
Full Retirement Age (FRA): Your FRA is the age you’re eligible to receive your full benefit (known as Primary Insurance Amount or PIA). Your FRA ranges between ages 66 and 67 and is based on your birth year. You can find your FRA by checking the table below:
Delayed Retirement Credits: You’ll receive delayed retirement credits if you continue to delay claiming your benefits after reaching your FRA. These credits permanently increase your benefits by 8% a year for every year you wait until age 70.
Spousal Benefits: When a married worker (the working spouse) elects to receive Social Security retirement benefits, their spouse (the receiving spouse) may also be eligible to receive benefits based on their (the working spouse’s) earnings. In order for the receiving spouse to do so, they must be at least 62, or any age, if caring for a qualifying child, and the working spouse must have elected to receive benefits.
Survivor Spouse Benefits: If you are entitled to Social Security benefits when you die, your surviving spouse will be eligible for a survivor benefit. The survivor benefit amount will be a function of your retirement benefit amount and when your surviving spouse claims the benefit.
Claiming At Age 62
While waiting to claim until your FRA or age 70 will result in higher monthly payments, the following are situations when claiming early may be the best strategy for federal employees:
You Need the Income
The number one reason why you should claim at age 62 is that you need the money. If you simply can’t afford to wait, maybe you don’t have much in your TSP, then starting Social Security at 62 might be the best strategy for you.
You Have a Shorter Life Expectancy
The second reason starting benefits early might make sense is if you’re single and have health issues or a family history of health issues and can reasonably assume you have a shorter life expectancy. In that case, starting benefits at 62 might be your best option.
Now in an ideal situation, you’d run an analysis to compare the total benefits you’d receive over your lifetime if you claimed at 62 compared with if you delayed claiming. This is the type of analysis I do for my clients who are approaching retirement. However, if you’re not working with a financial planner, then you might have to make a decision based on your life expectancy alone.
Also, the reason your marital status matters is because of spousal and survivor benefits. Since spousal and survivor benefits are based on your benefit amount, the optimal claiming strategy becomes more complex when married.
Claiming At FRA
Now that we’ve explored some of the situations when it may make sense for Feds to claim their benefits at 62 let’s review some of the situations when it may make sense to claim at your FRA:
You Plan to Continue Working
If you claim before your full retirement age and continue working, your benefits may be reduced or stopped if they exceed the Social Security annual earnings limit. The earnings limit for 2023 is $21,240, and for every $2 that exceeds this limit, your benefits will be reduced by $1.
However, if you wait until your full retirement age to claim benefits, you can continue working without any reduction in your benefit amount.
You Have Longevity in Your Family
Another reason why it might make sense to claim at your FRA is if you are expecting a long life. One of the fundamental risks of retirement is unknown longevity. While a long life is wonderful, it also requires more resources. Which means a higher probability of running out of money in retirement.
Increasing your Social Security benefits is one way to manage the risk of outliving your TSP. Hence, if you have a family history of longevity, you may want to consider waiting until your full retirement age to claim Social Security benefits. This will increase your guaranteed income in retirement and reduce the risk of depleting your TSP.
Claiming At Age 70
Although waiting until age 70 to claim will not be the right strategy for every federal employee, it can be a smart financial move for those who want to maximize their benefits and increase the steady stream of income they’ll receive throughout retirement. Here are a couple of situations where waiting until 70 may be the best choice:
You Want To Maximize Benefits
Waiting until age 70 to claim Social Security benefits will result in a significantly higher monthly benefit amount compared to claiming benefits earlier. This is because Social Security benefits permanently increase by 8% a year for every year you wait after your FRA until age 70.
Furthermore, waiting will not only increase your benefits but also will increase those of your spouse if you were to die. Remember that survivor benefits are partially based on the deceased spouse’s benefit amount.
Utilizing a Split Strategy (High/Low Incomes)
For couples, the best age to claim Social Security benefits can vary depending on various factors, including age differences and individual health status. In cases with a high and low-earning spouse, it’s generally best for the higher-earning spouse to delay claiming benefits until age 70, while the lower-earning spouse claims benefits earlier.
This strategy allows the couple to receive some income from Social Security while allowing the larger benefits of the higher earner to grow. Once the higher-earner reaches age 70, not only would their benefits have increased more than the low-earners would have, but again, the survivor benefits of the low-earner will now be larger.
Deciding when to claim Social Security benefits is a complex decision that requires careful consideration of many factors. While claiming benefits at age 62 may be the best option for some federal employees, waiting until full retirement age or even age 70 may be more beneficial for others.
Ultimately, the decision of when to claim Social Security benefits should be based on your individual circumstances, including your financial situation, health status, and retirement goals. It’s always a good idea to consult with a fee-only Certified Financial Planner™ to help you make the best decision for your individual needs.
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