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Will You Retire or Keep Working? Your Answer May Impact Your Social Security Check

One of the most important decisions you will make in retirement is when to begin receiving your Social Security benefits. Yet this decision often depends on another: whether you plan to retire or keep working. The following are some pointers to help you make both decisions with confidence.

When you can claim Social Security benefits

Understanding your Social Security award starts with the concept of full retirement age, or the age at which you are eligible to receive full retirement benefits which are determined by your year of birth, earnings history and other factors. For those born between 1943 and 1954, full retirement age is 66. And for those born after 1959, it gradually increases until it reaches 67. You can check with the Social Security website (SSA.gov) to look up your full retirement age.

The Social Security rules offer some flexibility to apply for a lower or higher monthly benefit. You can file for a lower benefit (compared to waiting until your full retirement age) as early as age 62 or delay the start of your Social Security checks to receive a higher benefit until as late as age 70. Note: there is no financial benefit to waiting beyond age 70 to claim.

Beyond the age at which you choose to file for benefits, one of the biggest factors in the amount you will receive monthly is whether you decide to work or not. The following are pros and cons of four common scenarios:

Retire and claim Social Security early: If you decide to apply for benefits early, you will receive a reduced amount.

  • Pro: One benefit of this approach is you can use Social Security to pay for immediate expenses, while your other retirement savings (e.g. retirement plan or other savings) have time to continue to grow.
  • Con: Your monthly check can be reduced by up to 25 percent or more compared to the amount you would be awarded at full retirement age. This difference may be significant if you spend decades in retirement.

Keep working and claim Social Security: You are allowed to apply for benefits and continue to work.

  • Pro: This is a common approach for retirees who choose to pursue part-time work. Claiming allows for a steady stream of income in case your other paycheck fluctuates and gives your investments time to continue to grow.   
  • Con: If you are under full retirement age, your check will be further reduced if you exceed the annual earnings limit. If your Social Security benefits are reduced because you work, they will be increased when you reach full retirement age. Social Security benefits can be subject to tax, so you may run up a higher tax bill. Consult your tax planner to review the implications of this scenario.

Retire and wait to claim Social Security: If you defer your retirement benefits beyond your full retirement age, you will get a bigger monthly check when you finally start taking benefits.

  • Pro: Delaying benefits may be advantageous if your expenses, including health care costs, are manageable in the foreseeable future and you expect to live long enough to make up for the months or years of postponed benefits.
  • Con: You may need to start drawing down other sources of income in the interim. Doing so may generate less investment growth in the future, so you will need to watch your withdrawal rate to ensure it remains sustainable.

Keep working and wait to claim Social Security: If you expect to rely on income from your current job or another one in retirement, you may consider waiting to claim benefits.

  • Pro: Relying on a steady paycheck can allow you to continue building your nest egg with additional savings, while your Social Security benefits grow too. This approach may be ideal if you want to save more to achieve your dream lifestyle later in retirement.
  • Con: You may not be able to choose your retirement date. A layoff or heath event could affect even the best-laid plans, so have a contingency option in place if you choose this approach.

These are only the most common scenarios, so keep in mind that other factors (such as your marital status and potential spousal benefits, amount of savings, financial concerns, retirement goals) will also impact your decision on when to claim benefits. For guidance on when the best timing may be for you, visit the Social Security website (SSA.gov) and consult a financial advisor in your area.

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Thomas R. Pasta, CFP®, is a Private Wealth Advisor with Trident Wealth, a private wealth advisory practice of Ameriprise Financial Services, Inc. in Annapolis, MD.  He specializes in fee-based financial planning and asset management strategies and has been in practice for 21 years. To contact him call his office at 410-224-7581 or visit their website at www.tridentwealth.com. Their office is located at 711 Bestgate Rd. Suite 201 Annapolis, MD.

Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser.  

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