One of the most important retirement decisions you will make is when to begin receiving Social Security benefits. Payouts increase for each year you delay claiming between ages 62 and 70. But selecting a start date is far from a simple decision.
A new AARP Social Security benefits calculator aims to help people decide when to claim retirement benefits. “It pays to wait because your benefits are going to grow,” says Jean Setzfand, vice president of financial Security at AARP. “Even waiting a year essentially buys them more in income than if they accessed it as soon as they are eligible, which is at 62.”
For example, a worker born on Jan. 1, 1955 currently earning $40,000 per year is estimated to receive $940 per month upon claiming Social Security at age 62. However, if the worker waits until age 66 to sign up, he will get $1,344 each month for the rest of his life. And if he delays claiming until age 70 he will receive the maximum possible monthly payment of $1,756. In this case, waiting to collect payments will earn the worker $816 more each month.
However, the decision about when to claim is more complicated for married couples. Spouses are entitled to benefits based on their own working record or up to half of the higher earner’s benefit, whichever is higher. Savvy couples can claim spousal benefits and later switch to their own work record, which will then be higher due to delayed claiming. Consider a married couple both born in 1955 in which the wife currently earns $40,000 and the husband earns $60,000. This couple could get the maximum possible benefit by having the wife claim a spousal payment of about $897 per month at age 66. Then at age 70 both members of the couple should claim based on their own work record, netting the husband $2,345 per month and the wife $1,756 per month, according to estimates from the AARP calculator.
The calculator also estimates the proportion of your retirement expenses your Social Security payments are likely to cover at various claiming ages using typical household expenditure data from the Bureau of Labor Statistics. A worker born in 1955 earning $40,000 is likely to get enough from Social Security to cover all of his monthly bills if he claims at age 70, according to the AARP calculator. However, if the same worker signs up for Social Security at age 62, he will only receive payments that will cover about half (55 percent) of the typical household’s expenses. Individuals can further customize their expected monthly expenses to get a more accurate representation of the portion of their expenses Social Security income alone is likely to pay for.
AARP’s calculator allows you to visualize what will happen if you work and claim Social Security benefits at the same time. Social Security recipients in their early 60s who earn above a certain threshold will have part of their benefit temporarily withheld until they hit their full retirement age. For most workers, the full retirement age is 66 or 67, depending on your year of birth.
The calculator assumes a 3 percent annual inflation rate and annual salary increases of 2.5 percent. If your salary fluctuates from year to year, AARP’s calculator might not provide an accurate representation of the benefits you will receive. Workers can get an estimate of their likely Social Security benefits using their actual earnings history from the Social Security Administration’s retirement estimator tool. “We definitely encourage people to go to the Social Security site to get the most accurate information for the tool,” says Setzfand.