3 Things That Affect When You Should Apply for Social Security

Workers who are eligible for Social Security can begin claiming benefits as early as age 62 and as late as age 70. But that's a pretty sizable window to work with.

Now one thing you should know is that if you file for benefits ahead of full retirement age, which for today's workers is 66, 67, or somewhere in between, you'll lose a portion of your Social Security income for each year you file early. On the flip side, if you hold off on benefits past full retirement age, you'll boost your payments by 8% for each year you wait.

Senior woman smelling flowers and smiling while standing next to a smiling senior man.
Senior woman smelling flowers and smiling while standing next to a smiling senior man.

IMAGE SOURCE: GETTY IMAGES.

So what's the right age for you to file for Social Security? Here are three factors to take into account.

1. Your health

The interesting thing about Social Security is that it's designed to pay you the same amount in lifetime benefits regardless of when you initially file. How can this be? While filing prior to full retirement age means losing out on a portion of each benefit payment, you also collect a larger number of payments in your lifetime. Meanwhile, waiting beyond full retirement age means getting more money out of Social Security each month, but collecting fewer payments in total. The logic, therefore, is that these various impacts balance each other out.

This formula, however, assumes one key thing, and it's that you live an average life expectancy. If you pass away sooner than anticipated, you'll wind up collecting less money from Social Security in your lifetime.

Here's an example. Say your full retirement age is 67, at which point you'd get $1,600 a month in benefits. Filing at 62 instead will reduce each individual payment you collect down to $1,120, but you'll get 60 more payments. If you live until about age 78 1/2, you'll break even under both scenarios. But if you pass away at age 74, you'll come out nearly $27,000 ahead in your lifetime by filing at 62. And that's why your health needs to play a key role in helping you determine when to take benefits. If it isn't good, then you'll want to file sooner.

2. Your savings level

Most Americans are currently unprepared for retirement, with the average household aged 56 to 61 having just $163,577 in savings. At a 4% annual withdrawal rate, which has long been the standard, that's just over $6,500 a year of income, which clearly isn't enough for most folks to live on. Therefore, if you're behind savings-wise, and are counting on Social Security to cover a large chunk of your bills as a senior, you'll want to take steps to get as much money out of the program as you can. And as long as your health is good, that generally means waiting on benefits as long as possible to increase your monthly payments.