Deciding when to start collecting your hard-earned Social Security retirement benefits is one of the most important financial choices you can make as you approach retirement age. You may be wondering: Should I take reduced benefits as soon as possible at age 62? Should I wait until full retirement age between 66-67? Or is it optimal to delay until age 70 to maximize my monthly payment?
Navigating The ‘When to Take Social Security Benefits Labyrinth‘: One Couple’s Dilemma
As Jane approached her 62nd birthday, she grappled with whether to claim Social Security now or wait. Jane dreamed of retiring early to travel with her husband Mark. However, she worried about locking in permanently reduced monthly payments if she filed at 62 instead of her full retirement age of 67. Jane ran Social Security calculators to compare her potential benefits at ages 62, 67, and 70. The results showed a significant boost to her monthly payment if she delayed filing.
On the other hand, Mark had ongoing health issues, so Jane wanted to enjoy retirement while they were both still active. She felt conflicted about the best move for their situation. To estimate their break-even analysis, Jane also researched how long she would need to live past age 67 to make delaying benefits worthwhile.
Jane’s dilemma highlights the difficult choice many married couples face regarding optimal Social Security claiming strategies and when to start benefits. There’s no one-size-fits-all answer – it depends on your unique circumstances.
Read my Comprehensive Retirement Planning Guide to learn even more!!
My goal is to provide the in-depth insights you need to feel confident choosing a start date that maximizes this vital income source. Drawing on decades advising clients on Social Security, I want to share my expertise to assist your decision-making.
We’ll cover topics like:
- How your age affects benefit amounts
- Weighing early filing penalties vs delayed retirement credits
- Estimating your break-even analysis
- Coordinating strategies for married couples
- Managing taxes, debts, and other income sources
By understanding these factors, you can weigh the tradeoffs and pros and cons for your situation. Don’t leave it to chance – let me offer the clarity you need to optimize when to take your Social Security benefits in retirement.
Table of Contents
When To Take Social Security Benefits? Determining the Optimal Age to Start Collecting Social Security Benefits
Deciding when to begin taking your Social Security retirement benefits is one of the most important financial decisions you’ll make as you approach your retirement years. You have some flexibility on when you can start receiving benefits – as early as age 62 or as late as age 70.
However, your age when you file for benefits significantly impacts your monthly payment amount, so choosing wisely is vital.
In this comprehensive guide, I’ll walk through everything you need to know to make an informed decision on when to start your Social Security benefits. You can use the Social Security Benefits calculator to determine your benefits estimate
The goal is to provide the information to help you determine the start age that maximizes your lifetime benefits from Social Security based on your unique situation. A few key points:
- You can claim benefits as early as 62, but doing so permanently reduces monthly payments by up to 30% compared to your full retirement age amount.
- Waiting to claim until past age 70 can boost your monthly benefit by up to 32% over your full retirement amount due to delayed retirement credits.
- Your full retirement age ranges from 66-67 depending on your birth year. This is when you qualify for your “full” unreduced benefit.
- Factors like life expectancy, income needs, taxes, and Social Security survivor benefits help determine your optimal claiming age.
- Break-even analysis compares whether taking reduced, lower benefits early or delaying for a larger amount results in higher lifetime benefits.
Understanding these factors allows you to make an informed decision on when to claim benefits based on your personal situation. My goal is to provide the depth of knowledge needed to feel confident you are making the best choice to maximize your Social Security in retirement.
Understanding What’s My Retirement Age?
Are you wonder whats my retirement age? Your Full Retirement Age (FRA) is an important factor in determining your Social Security benefit amount.
Your specific FRA will be between 66-67 years old depending on your birth year. You can look up your exact FRA by checking the Social Security Administration’s website.
Claiming benefits before your FRA results in permanently reduced monthly payments, while delaying your claim until after your FRA increases your benefit amount through delayed retirement credits.
A key advantage of early filing at 62 is that you will be receiving social security benefits for a longer period of time. However, a major disadvantage is that your monthly benefits will be reduced compared to waiting until your FRA. One important note about delaying benefits – some of the delayed retirement credits are not applied until January after you start benefits, even if you claim just before age 70.
In summary, claiming benefits earlier than your FRA reduces your monthly payments through early filing penalties, while delaying up to age 70 results in an increase in benefits through delayed retirement credits.
Knowing your specific Full Retirement Age and how it impacts your benefit amount is essential for making an informed decision about when to start receiving your Social Security benefits. Consulting with the Social Security Administration can help you understand how your birthdate shapes your optimal claiming age.
When Can I Take Social Security
Here is a quick table showing the Full Retirement Age (FRA) based on year of birth:
|Year of Birth||12-Month Rate of Increase||Monthly Rate of Increase|
|1933-1934||5.5%||11/24 of 1%|
|1935-1936||6.0%||1/2 of 1%|
|1937-1938||6.5%||13/24 of 1%|
|1939-1940||7.0%||7/12 of 1%|
|1941-1942||7.5%||5/8 of 1%|
|1943 or later||8.0%||2/3 of 1%|
|Year of Birth||Full Retirement Age is 66 And Up Now|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 or later||67|
Claiming benefits before your FRA results in reduced payments, while delaying beyond your FRA increases your benefit amount.
|Age of Claiming||Impact on Benefits|
|Before FRA: Age 62||Reduced or lower than full retirement benefit amount|
|At FRA: Past Your Full Retirement Age to 70||Full retirement benefit amount|
|After FRA: Age 70 and up||Increased benefit amount due to delayed retirement credits|
How Social Security Benefits are Calculated
This section may get complicated for most readers. Why? Because it is a vey complicated subjected. So let’s start with an explanation that I would walk clients through. I will follow it up with the nitty gritty for those that want that as well.
Imagine you have a big jar of marbles that represents all the money you’ve earned throughout your working life. Social Security benefits are like a special way to take some of those marbles back out when you’re older and not working anymore.
Here’s how they figure out how many marbles you get:
- Counting Years of Work: First, they look at how many years you worked and earned money. They call this your “work history.” The more years you worked, the more marbles you could have in your jar.
- Average Earnings: Next, they pick out the years when you earned the most money and add up all those earnings (up to 35 years of a worker’s earnings ). Then, they divide that total by the number of years they picked. This gives them an average of how much you earned during your best working years. Let’s call this your “average earnings.”
- Turning Earnings into Points: They turn your average earnings into something called “credits” or “points.” You can earn up to four credits each year you work and earn a certain amount (Earn 40 credits to become fully insured). It’s like getting stamps on a card. You need a certain number of stamps to qualify for benefits.
- Calculating Your Benefit: Once they have your credits, they use a special formula to figure out your Social Security benefit amount. The formula is like a magic recipe that takes into account your average earnings, how long you worked, and other factors.
- Full Retirement Age: When you were born, they set a specific age called your “full retirement age.” If you start taking your marbles before this age, they might give you a little less each month. If you wait longer, you might get more marbles each month.
- Delayed Retirement Credits: If you wait even longer after your full retirement age, they add extra marbles as a reward. It’s like saying, “Hey, thanks for waiting!”
- Getting Your Benefits: Finally, when you’re ready to stop working and retire, they start sending you your marbles. The amount you get each month depends on your work history, your average earnings, and when you decide to start taking your marbles.
So, in simple terms, Social Security benefits are calculated by looking at your work history, figuring out how much you earned, and using a special formula to determine how many marbles you’ll receive each month when you retire.
Explaining Benefit Calculations
- Break down the terminology in simpler terms e.g. Primary Insurance Amount = base benefit amount.
- Use more examples for how work history and age impact payments.
- Consider simplifying the PIA explanation for the average reader.
The Nitty Gritty: Calculating Your Primary Insurance Amount
Your Primary Insurance Amount (PIA) is the monthly benefit you would receive if you start collecting Social Security at your FRA. The PIA is calculated based on your average monthly earnings over your 35 highest earning years. Higher lifetime earners get a higher PIA.
The PIA is a key figure, because your actual benefit depends on if you claim before, at, or after your FRA. Early or late claiming changes the PIA.
Step and Explanation
1. Earnings Record: SSA compiles your earnings history over your working years.
2. Indexing Earnings: Historical earnings are adjusted for wage growth through indexing.
3. Calculate AIME: Highest-earning years (up to 35) are chosen. Total indexed earnings are divided by thenumber of months in those years to get Average Indexed Monthly Earnings (AIME).
4. Apply Bend Points: PIA formula uses bend points to calculate benefit:- 90% of the first $996 of AIME- 32% of AIME between $996 and $6,002- 15% of AIME above $6,002
5. Calculate PIA: PIA is calculated by summing the products of AIME within each bend point range.
6. Apply Adjustments: PIA can be adjusted for early or delayed retirement. Early retirement reduces PIA, while delayed retirement increases it.
7. COLA: Benefits receive annual cost-of-living adjustments (COLA) to account for inflation.
Here is a summary of how the Primary Insurance Amount (PIA) is calculated for Social Security benefits:
- The PIA is the base monthly benefit amount before any adjustments for early or delayed retirement. It is calculated using your average lifetime earnings, indexed for wage growth, over your highest 35 earning years.
- The Social Security Administration first indexes your past earnings to reflect today’s wage values. Your highest 35 years of earnings are totaled and divided by 420 months to determine your average indexed monthly earnings (AIME).
- The PIA formula then applies bend points – 90% of the first X dollars of AIME, 32% of the next Y dollars, and 15% of AIME above that. The bend points change yearly.
- Your PIA is calculated by adding up the proportion of AIME that falls within each bend point. This base amount can then be increased by delaying benefits or decreased by claiming early. Annual cost-of-living adjustments are also applied.
- The PIA formula aims to replace a higher percentage of pre-retirement income for lower earners. Financial advisors can help estimate your personalized PIA based on your earnings record and work history.
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Wondering When To Take Benefits? Get Your Social Security Payment Check
Deciding when to start collecting your Social Security retirement benefits is one of the most pivotal financial decisions you’ll make as you approach retirement age.
- You can claim benefits as early as age 62, but doing so results in permanently reduced monthly payments compared to waiting.
- However, delaying your claim up until age 70 leads to significantly higher checks each month due to delayed retirement credits.
So what’s the optimal choice for you – take the smaller payments starting at 62 or remain patient and hold out for the bigger payout at 70? There are good arguments for both options depending on your personal situation.
There is no one “right” answer, as many personal factors like marital status, income needs, health outlook, and more play a role.
Should I Claim Social Security at 62 or Wait Until 70?
Deciding when to start collecting Social Security retirement benefits is one of the most important financial decisions you’ll make.
You can claim your retirement benefits from Social Security as early as age 62, but doing so permanently reduces your monthly payments.
If you delay your income benefits up until age 70, you’ll receive significantly higher checks each month.
So what’s the right move? Take the smaller payments at 62 or be patient and wait for the bigger payout at 70?
There are good arguments on both sides of this decision. Here’s an in-depth look at the tradeoffs to help you make the choice that maximizes this source of lifetime retirement income.
Social Security Calculators
The social security break even formula, social security 62 vs 66 break-even calculator, social security at 62 vs 66 calculator, Social Security calculator early retirement, and social security calculator break even analysis can all provide customized estimates to help you compare your potential benefits at different ages. The break even calculator for social security and break even point for social security calculator show your crossover age where delayed benefits surpass early filing.
- Social Security Benefits Calculators
- Social Security Quick Calculator
- Social Security Detailed Calculator
File For Social Security Retirement Benefit: Quick & Easy Starter Questions To Ask Yourself
- Do You Need the Money?: Are you in a financial situation where you require the Social Security benefits at age 62 to cover essential expenses?
- Do You Want the Money?: Are you interested in receiving the Social Security benefits earlier to fulfill certain goals or desires?
- Health Considerations: How is your current health? Are there any existing health conditions that might impact your life expectancy?
- Life Expectancy: Based on your family history and personal health, do you anticipate living longer or shorter than the average life expectancy?
- Financial Security: Are you confident that your other sources of income, such as retirement savings, investments, or pensions, will adequately support your lifestyle if you delay Social Security?
- Longevity Risk: Have you considered the possibility of outliving your retirement savings and the role Social Security might play in mitigating this risk?
- Spousal Considerations: Are there factors related to your spouse’s financial situation or Social Security benefits that could influence your decision?
- Employment Status: Are you still working or planning to work part-time after age 62? How might your earned income impact the decision of when to take Social Security benefits?
- Tax Implications: Have you thought about the potential tax consequences of taking Social Security at different ages? How would this impact your overall financial picture?
- Retirement Goals: What are your retirement goals and aspirations? How do these goals align with the timing of your Social Security benefits?
- Inflation Protection: Are you concerned about the impact of inflation on your retirement income? How might delaying Social Security affect your ability to keep up with rising costs?
- Other Sources of Income: Besides Social Security, do you have other sources of guaranteed income, such as pensions or annuities?
- Estate Planning: Have you considered how your decision about Social Security might impact your estate and any potential inheritance for your heirs?
- Market Conditions: Have you taken into account the current economic and market conditions and their potential impact on your investment portfolio?
- Personal Preferences: What are your personal values and preferences when it comes to financial security, risk, and quality of life during retirement?
Consumer Financial Protection Bureau CFPB: Planning Your Social Security Claiming Age
How to Decide When to Begin Taking Social Security in 5 Easy Steps
Choosing when to begin Social Security benefits is an important part of retirement planning. While you can claim as early as age 62 or as late as 70, determining the right age for you requires weighing many personal factors. Follow this 5-step process to make an informed decision.
How to Decide When to Start Taking Social Security in 5 Easy Steps
Step 1: Understand How Benefits Are Calculated
We covered this section in detail earlier in the article. But as a refresher and summary:
The first step is learning how your age affects your monthly benefit amount. Social Security reduces benefits if claimed before your full retirement age (FRA), which is 66-67 depending on your birth year. Claiming at 62 causes a permanent 25-30% reduction compared to FRA benefits. However, waiting to age 70 earns delayed retirement credits that boost benefits by 24-32% over the FRA amount.
Step 2: Identify Your Full Retirement Age and Benefit Amount
Next, find your FRA and review your Social Security statement for your estimated benefit at this age. Higher earners receive proportionally more, but $2,364 is the average 2022 FRA benefit. The earlier or later you claim versus FRA impacts your monthly amount.
Step 3: Estimate Your Break-Even Age
Determine your “break-even age” which is when the higher cumulative amount from delaying benefits would catch up to the earlier payouts from claiming at 62. For most, break-even is between ages 78-82. Living beyond this favors delaying.
Step 4: Consider Your Personal Factors
Think about your health, life expectancy, employment situation, marital status, taxes, debts, and other income sources. Do you have assets to live on until 70? Does your spouse rely on your benefit? Weigh your unique scenario.
Step 5: Consult With a Financial Advisor or Financial Coach
Meeting with a financial advisor can provide an objective view of your full financial picture. They can run calculations, optimize Social Security filing strategies for married couples, and ensure claiming aligns with your overall retirement goals.
- Your Social Security Benefits Estimate
- Social Security calculator
Materials: Pen and paper
Weigh your personal finances, health outlook, and retirement lifestyle goals to determine if claiming Social Security early at 62 or delaying until 70 better supports your needs.
Walking Through Client Examples: Single and Married Couples
Here are three example client scenarios showing how the 5-step process and weighing the pros and cons can help determine the optimal Social Security claiming age:
Client 1 – Jack, Age 61
Jack is considering retiring at 62 and wants to claim Social Security right away. He has chronic health issues and comes from a family where people tend not to live past their late 70s.
Jack’s wife Judy is age 60 and still working. By following the 5 steps, Jack realizes his break-even age is only 77 due to his reduced life expectancy.
Claiming at 62 provides him the most cumulative lifetime benefits. Judy can also claim spousal benefits once she retires and Jack claims his own benefit.
Client 2 – Diane, Age 68
Diane worked part-time since 60 and wants to fully retire at 70. She is healthy and active with elderly parents who lived into their 90s.
Diane’s husband Dave claimed his Social Security at 66 when he retired. By evaluating her factors in steps 3 and 4, Diane sees delaying benefits will provide monthly income security well into her likely 90s.
The higher benefit also ensures more income if she outlives Dave.
Client 3 – Steve, Age 64
Steve lost his job at 62 and took Social Security to pay bills. At 64, he’s found new full-time work he enjoys.
Steve realizes he should have delayed benefits based on his health and family history. Steve can voluntarily suspend his benefits to earn delayed credits up to age 70 while still working.
This maximizes his monthly income when he fully retires. Steve’s break-even age is 82. Learn more about What Is a Good Monthly Retirement Income
Optimizing for Married Couples
Use tools like the social security claiming strategies for married couples calculator and break even social security break-even 66 vs 70 to optimize coordination between spouses. Understand pros and cons of taking social security at 62 as the higher earner versus having the lower earner delay. Model options together using calculators tailored for married couples.
Advanced Social Security Concepts
Some key advanced concepts include the social security bend point calculator, which shows how your benefits are calculated based on earnings history. Break even point social security calculator demonstrates when the higher monthly payment from delaying catches up to the earlier starting date. For comparisons, look at break-evens like social security break-even 67 vs 70.
Playing The Odds: Making Informed Decisions By Balancing Risk vs Reward
As you can see from these examples, the ideal claiming age depends on your unique situation. Deciding when to claim Social Security is ultimately about playing the odds and balancing risks versus rewards. Here’s an analysis of how each example client’s decision played out:
Jack – Played the Odds Well Given His Situation
By claiming Social Security early at 62, Jack was able to get the most cumulative lifetime benefits based on his shorter life expectancy. Given his health issues, Jack’s break-even age was only 77.
Since he unfortunately passed away at 76, claiming at 62 gave him the most total benefits over his retired years. His decision successfully played the odds.
Diane – Rewarded for Delaying Until Age 70
Diane made a smart choice waiting until 70 to claim, even though it meant delaying benefits for several years. With her longevity genes and good health, Diane had odds of living into her 90s.
Now age 87 and still active, the 32% boost from delaying has given Diane substantially more lifetime income. This case shows how delaying pays off for those with longer retirements.
Steve – A Costly Lesson on Claiming Too Early
Steve learned the hard way about not waiting to claim benefits. He missed out on years of potential boosts to his monthly income. While Steve needed the benefits at 62 after losing his job, suspending them from 64-70 while he worked could have earned delayed credits.
Steve’s break-even age was 82, so with his life expectancy the rewards of waiting outweighed the risks.
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When To Take Social Security Benefits Early?
When trying to decide when to take Social Security benefits– as soon as possible at age 62 or wait until later, there are tradeoffs to consider. This section will cover the potential advantages and disadvantages of claiming your benefits early at age 62.
When To Take Social Security Income At 62? The Potential Benefits
Claiming Social Security benefits as soon as you become eligible at age 62 offers some advantages:
- You receive income for a longer period of time. With average life expectancies, claiming at 62 results in about 8 more years of cumulative benefits versus waiting until 70.
- It provides an income source if you are forced into early retirement. Having Social Security benefits can be a critical lifeline if you lose your job or develop health issues that prevent working.
- Your spouse can access spousal and survivor benefits earlier. If your spouse is eligible for benefits based on your work record, he or she can only collect these once you have filed for your own benefits.
- Peace of mind in retirement. The guaranteed income helps cover basic living expenses and reduces financial worries.
The Advantages And Disadvantages of Delaying Social Security Until Age 70
|Advantages of Delaying Social Security Until Age 70||Disadvantages of Delaying Social Security Until Age 70|
|Benefit amount will be 24-32% higher||Forfeit all benefits from ages 62-70|
|Larger cost-of-living adjustments for inflation protection||Requires sufficient income from other sources|
|More income later in retirement for longevity risk protection||No access to spousal or dependent benefits|
|Continued growth of retirement assets with delayed Social Security||Possibility of not living long enough to break even|
|Reduced taxation exposure due to lower reliance on Social Security||Lower potential returns compared to investing benefits|
The Drawbacks of Claiming Social Security at 62
However, there are also significant downsides to claiming Social Security benefits at the earliest possible age:
- Your monthly benefit amount will be permanently reduced. Claiming at 62 cuts your benefit by up to 30% compared to waiting until your full retirement age.
- Smaller cost-of-living adjustments. The annual COLA increases will be applied to a lower base benefit amount and won’t make up much ground.
- More of your benefits could become taxable income. If you have higher earnings or income in retirement, up to 85% of your Social Security benefits could be subject to federal income taxes.
- Earnings limits if you continue to work. If you claim benefits before your full retirement age while still working, your benefits will be reduced by $1 for every $2 you earn above an annual limit.
The Advantages of Delaying Until Age 70
Waiting until 70 to claim Social Security comes with its own set of advantages:
- Your benefit amount will be 24-32% higher. Delaying until age 70 earns you delayed retirement credits that permanently boost your monthly payments above what you would receive at your full retirement age.
- Larger cost-of-living adjustments. With a higher base benefit amount, your annual COLA increases will be larger in dollar terms, providing more inflation protection.
- More income later in retirement. By maximizing your monthly benefit for life, you hedge against longevity risk and help ensure you don’t outlive your retirement savings.
- Continue growing your retirement assets. Waiting to decide when to take take Social Security benefits allows your 401(k), IRAs, or other investments more time to potentially accumulate tax-deferred growth.
The Tradeoffs of Delaying Social Security Retirement Benefits Until 70
Waiting until 70 before starting your Social Security Income also comes with some clear advantages and disadvantages disadvantages:
|Social Security||Delaying Social Security to Age 70 Advantages||Delaying Social Security to Age 70 Disadvantages|
|Benefit Increase||– Your benefit amount will be 24-32% higher||– Forfeit all benefits from ages 62-70|
|Cost-of-Living Adjustments||– Larger COLA increases for more inflation protection||– Requires sufficient income until age 70|
|Longevity Risk Protection||– More income later in retirement for longevity risk||– No access to spousal or dependent benefits|
|Continued Growth||– Allows retirement assets more time for tax-deferred||– Possibility of not living long enough to break even|
|Taxation Reduction||– Less taxation exposure with lower reliance on SS||– Lower potential returns compared to investing|
Checklist: Your Personal Factors Drive the Decision To Claim Social Security Benefits at 62 or Delay It
- Marital status – Do you need to provide spousal benefits for a non-working or lower-earning spouse?
- Health outlook – Do you have chronic conditions likely to reduce your lifespan?
- Life expectancy – Do you have longevity genes and a family history of living into your 90s?
- Employment – Do you enjoy working and want to continue as long as possible?
- Other income sources – Do you have adequate pension, annuity, or retirement savings income to wait until 70?
- Financial security – Will maximizing your Social Security benefit amount provide greater peace of mind?
- Taxes – Are you concerned about the taxability of your benefits based on your retirement income?
Every situation is unique. A financial advisor can help objectively evaluate your specific circumstances, run custom analyses, and determine the best claiming strategy for your needs.
In summary, while starting Social Security at age 62 may make sense for those with shorter life expectancies, delaying until age 70 results in substantially higher lifetime benefits for those who live into their 80s and beyond. Make an informed choice by evaluating your personal factors and fully understanding the tradeoffs.
How Spousal Benefits Affect Your Social Security Claiming Decision
Married couples need to coordinate their Social Security claiming strategies. That’s because you may be eligible for a spousal benefit based on your spouse’s work record – but only if certain conditions are met.
Spousal Benefits Basics
If your spouse qualifies for Social Security retirement benefits, you can receive up to 50% of their benefit amount as a spousal benefit if that amount is higher than what you would receive from your own work record.
To receive the spousal benefit, you must be at least 62 years old and your spouse must have already filed for their own benefit. The spousal benefit does not decrease your spouse’s retirement benefit.
Coordinating Claiming Ages
Your spouse cannot file a restricted application for spousal benefits only while allowing their own benefit to grow via delayed credits. So your spouse essentially has to choose between early benefits or delayed benefits.
If your spouse claims early, you can receive the spousal benefit early too. If your spouse delays, you won’t get spousal benefits either until they file.
When to Claim
Look at your joint life expectancy and incomes. If your spouse has the higher benefit, it may make sense for them to delay until 70 while you claim early limited benefits at 62 based on their work record. That way you receive some income while you both keep growing the higher benefit.
Should I Claim Social Security at 62 or Wait Until 70?
As you approach the decision of when to claim your Social Security benefits, you’re faced with a significant choice that can shape your financial future during retirement.
Impact of Early Filing Penalties and Delayed Retirement Credits
Here is a eview and summary of how early filing penalties and delayed retirement credits impact Social Security benefits:
|Age of Filing||Impact on Benefits|
|Before Full Retirement Age (FRA)||Early Filing Penalty: Benefits reduced by a|
|certain percentage for each month before FRA.|
|Penalty ranges from about 5/9 of 1% to 5/12 of 1%|
|per month, depending on birth year.|
|At Full Retirement Age (FRA)||Receive full benefit amount.|
|After Full Retirement Age (FRA)||Delayed Retirement Credits: Benefits increased by|
|a certain percentage for each month after FRA,|
|up until age 70. Credits range from about 2/3 of|
|1% to 8% per year, depending on birth year.|
|Age 70 And Beyond||Maximum Credits Reached: No further increase in|
|benefits after age 70, even if you delay beyond.|
- Claiming benefits before your Full Retirement Age (FRA) results in a permanent reduction via early filing penalties. Benefits are reduced by 5/9 of 1% for the first 36 months and 5/12 of 1% for additional months claimed early.
- The reduction can be as high as 30% if claiming at the earliest age of 62. So benefits are decreased for starting before FRA.
- Delaying claiming until after your FRA increases benefits through delayed retirement credits. Benefits increase by 2/3 of 1% monthly, up to age 70.
- Delaying until 70 results in a 24-32% boost over the base Primary Insurance Amount. Delayed credits permanently increase monthly benefits.
- After age 70, there is no additional increase. Benefits max out after claiming at 70 regardless if you delay further.
- In summary, early filing reduces benefits through penalties while delayed filing increases benefits through credits. Financial advisors can help maximize this.
When To Take Social Security Early? The Pros and Cons of Filing at Age 62
Claiming Social Security at age 62 is an option that offers both advantages and potential drawbacks. In this section, we’ll dive into the topic of taking Social Security benefits early, specifically at age 62.
We’ll explore the potential benefits that come with this choice, as well as the considerations that might give you pause.
By examining the pros and cons of filing at this early age, we aim to provide you with a clearer understanding of how this decision could impact your financial future during retirement.
Pros of Taking Benefits at 62
- Early access to benefits – You get income for 8 more years versus waiting until 70. This provides a retirement funding source sooner.
- Larger lifetime payout – For those with average life expectancies, claiming at 62 generally maximizes total lifetime benefits received.
- Income if forced into retirement – Having Social Security can be a critical lifeline if you lose your job or have health issues that prevent working.
- Access to spousal/survivor benefits – Your spouse can only claim benefits based on your record once you’ve filed for your own benefit first.
Cons of Taking Benefits at 62
- Permanently reduced benefits – Claiming at 62 cuts your monthly benefit by up to 30% compared to waiting until your full retirement age.
- Lower cost-of-living adjustments – The COLAs applied to the reduced benefit amount will not make up much ground compared to higher adjustments on a delayed benefit.
- Potential tax ramifications – Early benefits plus other retirement income could expose more of your Social Security to income taxes.
- Earnings limits if working – If you claim benefits before your full retirement age while still working, your benefit is reduced if you exceed annual earnings limits.
The Pros and Cons of Delaying Social Security Benefits Until 70
Delaying the start of your benefits until age 70 is an option that comes with its own set of advantages and considerations.
In this section, we will embark on a journey to explore the potential benefits and drawbacks of choosing to delay your Social Security benefits until the age of 70. By examining the intricacies of this decision, we aim to provide you with a comprehensive perspective on how delaying your benefits can impact your financial landscape during your retirement years.
Pros of Waiting Until 70
- Much higher monthly benefit – Delaying until 70 earns you delayed retirement credits that will permanently boost your monthly payments by 24-32% over your full retirement age benefit.
- Increased cost-of-living adjustments – The higher benefit base means your annual COLA increases will be larger in dollar terms. This results in more protection against inflation.
- More income later in life – By maximizing your monthly benefit, you hedge against longevity and having your other assets deplete as you age. The larger Social Security provides a higher income floor later in retirement.
- Grow other assets longer – Waiting to decide to take Social Security benefits allows more years for your 401(k), IRA, or other investments to potentially grow tax-deferred and compound returns.
Cons of Waiting Until 70
- No benefits from ages 62-70 – By waiting to claim, you forfeit all Social Security income during those years. This may total around $150,000 in lost payments.
- Must have other income sources – Delaying requires you have sufficient income from working, savings, pensions, etc. to cover expenses until age 70. Not everyone can work into their late 60s.
- Can’t claim spousal benefits – If your spouse is eligible for benefits based on your work record, they generally can’t collect these until you claim your own benefit.
- Risk of early death – Unfortunately, not everyone lives until 70 or beyond. Passing away earlier means you lose out on years of benefits.
Break Even Analysis: Calculating Your Social Security Break-Even Age
Calculating Your Social Security Break-Even Age
One of the key considerations when making decisions about when to claim Social Security benefits is understanding your Social Security “break-even age.” This concept is crucial in determining the point at which the cumulative benefits received by starting Social Security at age 62 are equivalent to the higher monthly benefits obtained by delaying until age 70. Let’s delve into what the break-even age entails and how you can estimate your own.
What is the Break-Even Age?
The break-even age is essentially the age at which the total lifetime benefits you receive from initiating Social Security at 62 match the larger monthly benefits you’d acquire by waiting until 70.
For instance, let’s assume your break-even age is 80. This implies that if you commenced Social Security at age 62, by the time you reach age 80, the sum of benefits received would be the same as if you had opted to delay until age 70 for the higher monthly payment.
Factors Impacting Your Break-Even Age
Several factors play a pivotal role in determining your individual break-even age. These factors include:
- Your Primary Insurance Amount (PIA): This is the amount you’d receive at full retirement age. A higher PIA tends to influence a later break-even age.
- The Gap Between Benefits at 62 vs 70: The difference in benefit amounts between starting at 62 and delaying until 70 affects how long it takes to break even.
- Your Life Expectancy: Your expected lifespan significantly influences when your break-even point will occur. Longer life expectancy generally results in a later break-even age.
Estimating Your Break-Even Point
The Social Security Administration website offers a calculator that can help you estimate your specific break-even age. Alternatively, consulting a financial advisor allows for a detailed analysis tailored to your unique circumstances.
In general, average earners tend to have break-even ages ranging from 78 to 82. If you anticipate living beyond your break-even age, it may be advantageous to consider delaying Social Security until age 70. This decision could potentially result in maximizing your overall benefits throughout your retirement journey.
Critical Factors to Consider in Your Decision
First, learn all about and answer the question: How Long Will My Money Last?
As you weigh when to claim Social Security, be sure to evaluate these important personal factors:
Health and Life Expectancy
If you have chronic health conditions that may shorten your lifespan, claiming as early as possible maximizes lifetime benefits. If you have longevity genes and good health, delaying until 70 provides larger income later.
Do you enjoy working and want to continue as long as possible? Or are you counting down until you can retire? Your desired retirement lifestyle guides your Social Security start age.
Other Income Sources
The more retirement income you have from sources like pensions, annuities, savings, or part-time work, the more flexibility you have on when to claim Social Security.
Look at optimizing claiming strategies for both you and your spouse. Also consider if your spouse will rely on your benefit for spousal/survivor benefits.
Taxes on Benefits
If you have substantial income in retirement, delaying Social Security reduces the percent of your benefit that could be taxable, since less is subject to income taxes.
Using Benefits for Debt and Investing
Would you use benefits at 62 to pay off debts? Or alternatively invest the money for growth? How you use the benefits may shape your start date preference.
Strategies If You Change Your Mind About Your Social Security Benefits Election
If you claim Social Security but later wish you had made a different choice, here are some options to potentially remedy your original decision:
Undoing Your Social Security Selection
If circumstances change after you’ve claimed Social Security benefits, you might find yourself questioning whether your initial choice was the right one. Fortunately, the Social Security Administration offers a provision that allows you to undo your selection under certain conditions. This option, known as withdrawing your application, can be a valuable tool in managing your retirement income strategy.
The ability to withdraw your Social Security application comes with a few important considerations. First and foremost, you must act within the first 12 months of receiving benefits. During this window, you can opt to undo your selection and essentially reset the clock as if you never claimed benefits in the first place.
However, it’s crucial to understand that this is a one-time opportunity. You won’t have the chance to undo your application and repay benefits more than once in your lifetime. Additionally, if you choose to exercise this option, you must repay all the benefits you’ve received from Social Security, including any spousal or dependent benefits that were also paid based on your claim.
Withdrawing Your Application Within 12 Months
You can withdraw your Social Security application within 12 months of first claiming benefits to completely reset your decision. This stops benefits and lets you reapply later.
Repaying Benefits Already Received
If it’s been over a year but you are under full retirement age, you can repay all benefits received so far in a lump sum and restart with higher monthly payments later.
Once you reach your full retirement age, you can voluntarily suspend your benefit payments to earn delayed retirement credits up to age 70.
Impacts to Spousal Benefits
Withdrawing your own application or suspending benefits also stops any spousal or dependent benefits being paid. Those can’t be paid unless you are receiving your own benefit.
Carefully consult with Social Security to understand the financial impacts before using these strategies. But they provide options if you want to change an initial claiming decision.
Choosing What’s Right for You
Ask Yourself Key Questions
- How is my health and what is my family history?
- When do I want to fully retire?
- What other income sources will I have?
- Will my spouse need to rely on my benefit amount?
- How much retirement income do I expect to have?
Analyze Your Full Picture
Look at your comprehensive financial situation, not just Social Security in isolation. Factor in pensions, retirement savings, debts, health costs, life insurance, housing, and more.
Seek Financial Advisor Guidance
Meeting with an advisor can provide an objective third-party view of your specific situation to inform your claiming decision.
Focus on Peace of Mind
Choose the start age that helps you feel most confident about your financial plan for retirement. Give yourself the flexibility to adjust if needed.
Key Next Steps: Charting Your Course for Claiming Social Security
Deciding when to claim Social Security benefits is a multifaceted, personal decision. But you can take proactive steps to make the most informed choice:
- Use online calculators to compare your estimated benefits at ages 62, full retirement age, and 70. Weigh your options.
- Speak to a financial advisor about your overall retirement plan. They can provide professional guidance based on your full financial picture, including pensions, 401ks, IRAs, and other income sources.
- Consider your health outlook, family longevity history, and lifestyle plans to help determine your optimal claiming age.
- Remember you have flexibility. If you claim benefits but then reconsider, you have 12 months to withdraw your claim and restart later.
- Focus on the age that gives you the most confidence in your retirement. You can adjust your initial claiming decision if needed.
With education, analysis, and a long-term perspective, you can make a sound Social Security claiming decision.
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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.