Claiming Social Security Benefits: When Is the Best Time for You?
Deciding the age at which you’d like to begin receiving Social Security retirement benefits is tricky: Should you go for the lower-dollar option at age 62 — an immediate sure thing — or wait until full retirement age and get bigger monthly checks for the years that remain? It’s important to learn about your different options and benefit amounts before you start receiving benefits — because once you start claiming retirement benefits, you can’t change your mind and stop.
Here’s how to determine what your retirement benefits will be at different ages, and whether you should take early retirement benefits or not.
Your Retirement Options: Early, Full, and Late Retirement
You may opt to receive benefits early (at age 62), at full retirement age, or after full retirement age. Your full retirement age varies, depending on when you were born. It will be somewhere between 65 and 67. (To determine your full retirement age, visit the Social Security Administration’s website at www.ssa.gov, and click “Plan Your Retirement,” then click “Find Your Retirement Age.”)
If you claim benefits before full retirement age. Approximately three-quarters of retirees claim benefits as soon as they turn 62 (referred to as “early retirement”). If you claim early retirement, you’ll receive approximately 20% to 30% less than you would have if you’d waited until full retirement age.
If you claim benefits at full retirement age. Although this entitles you to “full” retirement benefits, you’re actually given an incentive to wait even longer, as described next.
If you claim benefits after full retirement age. From your full retirement age until you reach age 70, the Social Security Administration (SSA) will increase your benefits by a certain percentage – somewhere between 5.5% and 8%. (To find out how much your benefits will increase, go to www.ssa.gov/retire2/, and click “Discover Your Retirement Options.”) For example, baby boomers will earn a whopping 8% more for each year they delay until age 70.
Let’s see how this plays out. Imagine you earned an average of $75,000 a year. If you retired early, at age 62, you’d receive $15,888 in Social Security annually from retirement until the end of your life. If you retired at your full retirement age (let’s say it’s 66), you’d receive $21,181 annually. If you waited to retire until age 70, you’d receive $28,821 annually, an 81% increase in monthly payments over claiming them at age 62.
Curious about the grand totals? If you lived to be 75, you would receive a total of $222,432 if you started at age 62, $211,810 if you started at full retirement age, and $172,926 if you started at age 70. (These annual amounts may vary based on cost-of-living increases built into the payment system.)
Calculating Your Retirement Benefits for Each Option
The SSA offers online calculators to help you estimate your retirement benefits at each age. Go to the SSA home page (www.ssa.gov) and under “Retirement,” click “Calculate Your Benefits.”
You can also see a personalized comparison of retirement benefits at age 62, at full retirement age, and at age 70 on your Social Security Statement. If you’ve never received a statement, call 800-772-1213, contact your local Social Security office, or go to www.ssa.gov/mystatement to request a copy.
Determining Which Retirement Age is Best for You
Should you take the money and run at age 62? Or hold out until you’re 70? Approximately 75% of people don’t wait past age 62, usually because they need the money, are convinced that Social Security might collapse at a later date, or are fearful of a short life span.
But is early retirement a good option for you? The questions below will help you decide.
Are you still working? Some people, especially construction workers and other physical laborers, are less physically able to handle work at 62, even though they don’t qualify for disability. They may be good candidates for early retirement.
However, if you’re still able-bodied and interested in working, you might want to avoid claiming early retirement benefits. If you’re earning a high salary, you’ll miss the opportunity to boost your Social Security payment amount. (Your monthly payments are fixed based on the average of your top 35 earning years. But once you elect to receive benefits, you can’t continue to increase your average based on later Social Security contributions.)
Second, you’ll lose one dollar in benefits for every two dollars you earn over the SSA’s Earnings Limits ($12,960 in 2007). There are no such deductions if you work after reaching full retirement age. The SSA provides an online calculator to determine whether working will lower your retirement benefits. It’s at www.ssa.gov/OACT/COLA/RTeffect.html.
How’s your health? If you’re convinced — either by genetics, research, or the amount of time you spend in doctors’ offices — that you’ll have a shorter lifespan than your peers, it doesn’t make much sense to delay your retirement benefits.
What’s your break-even point? If you had a good idea of when you were to die, you could compare your total benefit payments under all three common scenarios — age 62, full retirement age, and age 70. Financial planners prefer to calculate your break-even point — that’s the age at which two of your total lifetime benefit amounts become equal to each other — for example, when total lifetime benefits claimed beginning at age 62 equal total lifetime benefits claimed beginning at age 66.
If you believe you’ll live past this age (referred to as the “break-even” age), you should delay claiming benefits until the later of the two dates, in order to give yourself an overall higher total. Find out this number using the SSA’s Break-Even Age calculator (located by going to www.ssa.gov and typing “break-even calculator” in the search box).
Are you married? If one spouse has contributed far less to Social Security than the other, the greater-contributing spouse should ideally wait longer to claim benefits — at least until full retirement age. Then if the higher-earning spouse dies first, the survivor can claim the spouse’s full benefit.
For many couples, it pays for the wife to start collecting at 62 and for the husband to wait. This is because husbands are likely to die first; when that happens, the widow can collect based on his, typically higher, benefits. It’s all probability, of course, and changing right along with other societal changes.
What will you do with the money? Claiming early benefits makes sense if you need the money for necessities — though that’s also a sign that you’re not saving enough, and should, if you’re physically able, continue working longer. But claiming early benefits simply to augment an already-comfortable annual income doesn’t make much sense. If you planned to invest the money, your investments would need to earn more than 7% annually to equal what you’d make by delaying benefits until full retirement age.
Do you have dependents? Your family’s dependents and survivors benefits may be reduced if you claim early retirement benefits. Before deciding, investigate the effects at the SSA website.
