When it comes to preparing for retirement, deciding when to claim Social Security retirement benefits is one of the biggest decisions you’ll make. Ninety-four percent of U.S. workers are covered by these benefits, which were designed to supplement other forms of retirement income.1
For many retirees, Social Security retirement benefits are an important income source. Nine out of 10 people age 65 and over claim Social Security benefits, and they average nearly 40% of total income of people in this age bracket. For many—more than half of married couples and 74% of single people—Social Security benefits make up at least half of post-retirement income.2
Workers can elect to begin receiving their benefits as soon as age 62, but there may be financial advantages to waiting until “full retirement age”—the age when they receive full benefits. Full retirement age is currently age 66 for those born between the years of 1943 and 1954 and will rise to age 67 for those born in 1960 or later. Wait beyond full retirement age to claim benefits and they increase even more each year until you reach age 70.3 Find out your full retirement age by using the calculator here.
Social Security benefits are calculated based on “credits.” A worker may earn up to four credits per year, based on the amount of money earned. For example, in 2015, a worker must earn and pay Social Security tax on $1,220 in wages to get one Social Security credit. You must earn and pay taxes on $4,880 to receive the maximum four credits in one year.4 You must have at least 40 credits in order to qualify for Social Security retirement benefits. These credits can be earned at any time during your work history and do not need to be earned consecutively. Benefit amounts are then calculated based on the worker’s overall wages. The Social Security Administration web site offers a retirement benefits estimator to help you understand how much your benefits will be at each age.5
While workers are eligible to claim their benefits at age 62, doing so forfeits as much as 25% of the monthly amount a retiree may ultimately receive.6 Benefits increase even more if you wait until age 70 to receive them.7 However, postponing your claim also means that you don’t receive any payments during the years in which you deferred claiming benefits.Financial Needs: Retirees often need 70% of pre-retirement income to meet financial needs. Social Security replaces only about 40%.8 If you are having trouble making ends meet, claiming your benefits early might be a good solution. Doing so reduces your benefit amount, but you receive benefit payments sooner and will receive more payments during your lifetime.
However, if you prefer to maximize your monthly income, waiting to claim benefits might be the better option. If you are eligible to receive a $1,000 per month benefit at full retirement age, you will receive only $750 per month if you claim benefits at age 62. However, if you wait until age 70 to claim benefits, that monthly payment increases to $1,320.9While that is a significant increase, delaying your claim from age 62 to age 70 means that you forego receiving $72,000 in payments that would have been made monthly during that time. It will take more than 10 years to make up that amount in increased payments. However, if you continue to earn wages after age 62, you may not need Social Security income, which may increase your tax liability.
To help you understand how much income you’re going to need in retirement, consult a TIAA-CREF financial advisor.
1 Social Security program fact sheet, June 2014. http://www.ssa.gov/OACT/FACTS/
2 Social Security Administration web site, April 2014. http://www.ssa.gov/pressoffice/basicfact.htm
3 Social Security Administration web site, Dec. 2014. http://www.socialsecurity.gov/retire2/delayret.htm
4 Social Security Administration web site, Dec. 2014. http://www.ssa.gov/retire2/credits1.htm
5 Social Security Administration web site, Dec. 2014. http://www.ssa.gov/estimator/
6 Social Security Administration. “Retirement Benefits,” April 2013. http://www.ssa.gov/pubs/EN-05-10035.pdf
7 Social Security Administration web site, Dec. 2014. http://www.socialsecurity.gov/retire2/delayret.htm
8 Social Security Administration. “Understanding the Benefits,” January 2014, http://www.ssa.gov/pubs/EN-05-10024.pdf
9 Social Security Administration. “When to Start Receiving Benefits,” January 2014 http://www.socialsecurity.gov/pubs/EN-05-10147.pdf
10 Social Security Administration web site, Dec. 2014. http://www.ssa.gov/retire2/divspouse.htm
11 Social Security Administration, “Getting benefits while working,” December 2014. http://www.ssa.gov/retire2/whileworking.htm
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The statements made in this article represent TIAA-CREF's interpretation of applicable law. It is presented with the understanding that TIAA-CREF (and its affiliates, distributors, employees, representatives and/or insurance agents) are not engaged in rendering legal or tax advice.
The tax information in this article is not intended to be used, and cannot be used, to avoid possible tax penalties. Taxpayers should consult an independent tax advisor for advice based on their own particular circumstances.
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