Claiming Social Security at 65? You May Need to Rethink That | Personal Finance


(Maurie Backman)

Many people associate age 65 with retirement age. The reason? Age 65 is when Medicare eligibility kicks in.

To be clear, you don’t have to enroll in Medicare at age 65 if you’re still working and have group health coverage through your job or through your spouse’s job. Even if that situation doesn’t apply to you, you still won’t be forced to sign up for Medicare at 65 if you don’t want to — but you might face late-enrollment penalties down the line.

if you are enrolling in Medicare at age 65, you may decide to file for Social Security simultaneously. But that could end up being a decision you’ll ultimately regret.

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The danger of claiming Social Security too soon

The monthly Social Security benefit you’re entitled to during retirement will hinge on your personal wage history. But the age at which you sign up will also determine how much money you’ll collect on a monthly basis.

You’re entitled to your full monthly benefit based on your earnings history once you reach full retirement age, or FRA, which kicks in at age 66, 67, or somewhere in between, depending on your year of birth. Meanwhile, you’re allowed to sign up for Social Security beginning at age 62. But for every month you file ahead of FRA, your benefit will take a permanent hit.

FRA first begins at age 66 for those born between 1943 and 1954. If you file for Social Security at age 65, you’ll automatically slash your monthly benefit by a minimum of 6.67% and possibly more if your FRA is later.

If you’re nearing retirement with a huge amount of money in your nest egg, then a reduced benefit may not be such a big problem. But if you’re short on savings or really want to live it up in retirement, then claiming Social Security at 65 could mean running the risk of being cash-strapped down the line. And that’s a risk not worth taking.

You may even want to delay your claim

Signing up for both Medicare and Social Security at age 65 might seem like a convenient route to take. But doing so could leave you with a lower monthly benefit — and a host of financial issues to grapple with.

A better bet? If you’re not confident in your level of savings, hold off on claiming Social Security until you reach FRA. Or if you’re able to, delay your filing beyond that point.

For each month you hold off on claiming Social Security beyond FRA, your benefit will get a little boost. Delay your filing to full year, and you’ll grow your benefit by 8%.

Once you reach age 70, you can no longer increase your benefit, so there’s no sense in delaying your filing past that point. But waiting until age 70 to file could grow your benefit by 24% to 32%, depending on your FRA. And that’s a great way to make up for missing savings and buy yourself the long-term financial stability you deserve.

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