- When Should You Take Social Security?
- What’s full retirement age?
- What if I take benefits early?
- What if I delay taking my benefits?
- How should I decide when to take benefits?
- What about taxes on social security?
- What if I change my mind?
- What is the future of social security?
- The bottom line
- Social Security: What is the best age to begin collecting?
- 1. There are many ways to claim benefits
- 2. It’s a gamble either way
- 3. Be smart about timing a divorce
- 4. An ex-spouse can collect on late spouse’s benefit
- 5. Benefits for widows and widowers are more flexible
- 6. Use a lawyer for an SSDI application
- 7. The magic number is 35
- More from Bankrate:
- When to Take Social Security Benefits: 62, 67 or 70?
- 5 factors to help you decide
- Think it through and get a second opinion
When Should You Take Social Security?
In this article:
The decision of when to take Social Security is highly dependent on your circumstances.
You can start taking it as early as age 62 (or earlier if you are a survivor of another Social Security claimant or on disability), wait until you’ve reached full retirement age or even until age 70.
While there’s no “correct” claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement. Here are some of the rules and guidelines.
What’s full retirement age?
Full retirement age (also known as “normal retirement age”) is when you’re eligible to receive full Social Security benefits.
Your full retirement age depends on your birth year: Under current law, if you were born in 1951 or later, your full retirement age is now some point after age 65—all the way up to age 67 for those born after 1959.
If you were born before 1951, you’ve already reached age 66 and full retirement age.
Retirement ages for full Social Security benefits
|If you were born in…||Your full retirement age is…|
|1950 or earlier||You’ve already hit full retirement age|
|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|
What if I take benefits early?
If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.
If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.
For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and you elect to start benefits at age 62, the reduced benefit calculation is 48 months.
This means that the reduction for the first 36 months is 20% (five-ninths of 1% times 36) and 5% (five-twelfths of 1% times 12) for the remaining 12 months.
Overall, your benefits would be permanently reduced by 25%.
What if I delay taking my benefits?
If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit (DRC). For example, say you were born in 1951 and your full retirement age is 66.
If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by two (the number of years you waited). This makes your benefit 16% higher than the amount you would have received at age 66.
(This doesn’t include any potential additional cost of living adjustments for inflation from 66-68).
That higher baseline lasts for the rest of your retirement, and serves as the basis for future increases linked to inflation. While it’s important to consider your personal circumstances—it’s not always possible to wait, particularly if you are in poor health or can’t afford to delay—the benefits of waiting can be significant.
If you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you do not sign up at age 65.
To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70, assuming you continue to work and earn about the same amount until age 62, full retirement age, or age 70 before retiring. If you need a copy of your annual statement, you can request one from the Social Security Administration (SSA).
How should I decide when to take benefits?
Consider the following factors as you decide when to take Social Security.
Your cash needs: If you’re contemplating early retirement and you have sufficient resources (an investment portfolio, a traditional pension, and other sources of income), you can be flexible about when to take Social Security benefits.
If you’ll need your Social Security benefits to make ends meet, you may have fewer options. If possible, you may want to consider postponing retirement or work part-time until you reach your full retirement age—or even longer so that you can maximize your benefits.
Your life expectancy and break-even age: Taking Social Security early reduces your benefits, but you’ll also receive monthly checks for a longer period of time. On the other hand, taking Social Security later results in fewer checks during your lifetime, but the credit for waiting means each check will be larger.
At what age will you break even and begin to come out ahead if you delay Social Security? The break-even age depends on the amount of your benefits and the assumptions you use to account for taxes and the opportunity cost of waiting (investment returns you could have made, inflation, etc.). The SSA has several handy calculators you can use to estimate your own benefits.
If you think you’ll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if you’re in poor health or have reason to believe you won’t beat the average life expectancy, you might decide to take what you can while you can.
While it may be tempting to look only at your break-even point and think about Social Security as a math equation or an investment decision, it’s often better to think about Social Security as a form of insurance.
A quick note about life expectancy: According to the Social Security Administration, average life expectancy for a 65-year-old male is around 84 years and 86.5 for females. Married individuals tend to live even longer, with a greater than average probability of at least one spouse living to age 90. To compute your own life expectancy, use the life expectancy calculator at SSA.gov.
Remember, though, that the average is just that—an average. If you have a shorter life expectancy than average, then early withdrawals might be a better option for you. If you don’t, starting Social Security later can be particularly beneficial if you live longer than average.
Your spouse: If you are married, you can explore additional strategies to maximize the benefits you receive collectively.
Start by taking your spouse’s age, health, and benefits into account, particularly if you’re the higher-earning spouse.
The amount of survivor benefits for a lower-earning spouse could depend on the deceased, higher-earning spouse’s benefit—the bigger the higher-earning spouse’s benefit, the bigger the benefit for the surviving spouse.
Whether you’re still working. Earning a wage (or even self-employment income) can reduce your benefit temporarily if you take Social Security early. If you're still working and you haven't reached your full retirement age, $1 in benefits will be deducted for every $2 you earn above the annual limit ($18,240 in 2020).
In the year you reach your full retirement age, the reduction falls to $1 in benefits deducted for every $3 you earn above a higher limit ($48,600 in 2020). However, starting the month you hit your full retirement age, your benefits are no longer reduced no matter how much you earn.
Again, any reduction in benefits due to the earnings test is only temporary. You receive the money back in the form of a recalculated higher benefit beginning at full retirement age, so don’t use the reduction as the sole reason to cut back on working or worrying about earning too much.
To wait or not to wait?
|Consider taking benefits earlier if …||Consider waiting to take benefits if …|
|You are no longer working and can’t make ends meet without your benefits.||You are still working and make enough to impact the taxability of your benefits. (At least wait until your normal retirement age so benefits aren’t further reduced due to earnings.)|
|You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.||You are in good health and expect to exceed average life expectancy.|
|You are the lower-earning spouse and your higher-earning spouse can wait to file for a higher benefit.||You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.|
What about taxes on social security?
Keep in mind that Social Security benefits may be taxable, depending on your “combined income.” Your combined income is equal to your adjusted gross income (AGI), plus non-taxable interest payments (e.g., interest payments on tax-exempt municipal bonds), plus half of your Social Security benefit.
As your combined income increases above a certain threshold (from earning a paycheck, for instance), more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
What if I change my mind?
If you receive Social Security benefits at a reduced rate, but then change your mind, you have the option of withdrawing your application and paying back to the government what you've already received (including Medicare payments and taxes deducted). Then, you could restart benefits at a later date to take advantage of a higher payout. But you are limited to one withdrawal per lifetime.
For example, let's say you elected to receive early benefits at age 62, but then decided to go back to work at age 63. You could withdraw your Social Security application within the first 12 months of receiving benefits, pay back the years’ worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.
For important details about repaying benefits please read the SSA publication If You Change Your Mind.
What is the future of social security?
If you’re skeptical about the future of Social Security or wary of potential changes such as means testing—which could reduce or eliminate benefits for the wealthy, or an increase in the full retirement age—you may be tempted to start benefits early, under the assumption that it’s better to have something than nothing.
The 2020 annual report from the Social Security Trustees, released in April, projects that the Social Security Trust Fund has enough resources to cover all promised retirement benefits until 2035, and will cover 79% of scheduled benefits for new retirees thereafter without changing the current system.
The 2020 report does not include an adjusted projection due to impacts, if any, from the pandemic.
Over the longer term, changes such as later benefit dates or means testing (a reduction in benefits your other income sources) may be considered.
In any situation, if you’re particularly concerned about the future prospects for Social Security, that’s a good reason to save more, and earlier, for your retirement.
The bottom line
If you have a choice and are in good health, think seriously about waiting as long as you can to take your benefits (but no later than age 70). For retirees in good health, a long retirement coupled with uncertainty about markets and inflation are the biggest risks. Delaying Social Security, if you can, is effectively an insurance policy against those challenges.
Your situation may differ, however, and there are many factors to consider. Get help from your financial planner if you need it.
Social Security: What is the best age to begin collecting?
Have you ever wondered how the FICA tax information on your pay stub impacts your future retirement benefits?
FICA is a payroll tax that funds both Social Security and Medicare, amounting to a 7.65 percent contribution from each paycheck, an amount which your employer matches. It gets deducted from your first paycheck all the way up to the time you retire, when you can collect benefits.
But claiming Social Security benefits can be a tricky business.
Here’s a list of some little-known Social Security benefits. Putting your knowledge to good use can make a big difference in your retirement income.
1. There are many ways to claim benefits
There are many ways to collect Social Security benefits, says Alicia Munnell, director of the Center for Retirement Research at Boston College.
You can collect your own benefit starting at age 62 or anytime up until you’re 70. Those who collect early get a smaller monthly payout because they usually collect benefits over a longer period of time than those who wait.
It’s generally advisable to wait at least until you’ve reached full retirement age to start collecting Social Security because the monthly benefit is so much higher. For example, if you were born in 1955, your full retirement age is 66 years and 2 months. That would be the age at which you can collect 100 percent of your benefit.
But if you start collecting at 62, you will get only 74.2 percent of the monthly benefit. If you delay your benefit until age 65, you will get 92.2 percent of the benefit. After full retirement age, your benefit increases 8 percent a year up to age 70. The benefit doesn’t get any bigger beyond 70, so it no longer pays to wait.
wise, if you receive Social Security benefits as a spouse, the longer you wait, the bigger the benefit, provided your wage-earner husband or wife waited until full retirement age to start collecting.
2. It’s a gamble either way
Some people advocate drawing Social Security benefits at the first opportunity.
Doug Carey, founder and president of the financial planning software firm WealthTrace, says Social Security doesn’t see itself as an oddsmaker, but it does require you to bet on your longevity.
For example, the break-even point for someone who earned the inflation-adjusted equivalent of $70,000 per year for 35 years is about age 80. If this person waits until 70 to claim Social Security and lives until at least age 90, he’ll accumulate almost $162,000 more in benefits than he would if he had claimed at 62. But there’s a possibility of losing the bet and getting nothing.
Retired law professor and Social Security expert Merton Bernstein says the odds of winning the longevity bet are bad — so claim early. “You never know when the bell will ring. I subscribe to the Woody Allen principal: ‘Take the money and run.’”
3. Be smart about timing a divorce
If you’re not happy in your marriage after 9 1/2 years, hold off at least six months before filing for divorce.
Why? You must be married at least 10 years to stake a claim to your ex-spouse’s Social Security benefits. If you terminate the marriage after nine years and 11 months, you’re not eligible.
If you make it for 10 years, you can collect a Social Security benefit up to half of your ex’s earnings or on the basis of your own earnings, whichever is higher. This is particularly important if one parent stayed home with the kids while the other worked.
4. An ex-spouse can collect on late spouse’s benefit
If an ex-spouse dies, you may be able to receive benefits similar to a widow or widower. If you are at least 60, the marriage lasted at least 10 years and you didn’t remarry before age 60, you’ll most ly be able to collect your late spouse’s benefit.
How much you receive depends on the ex-spouse’s earnings. Consult the Social Security Administration’s website to see examples of survivors benefits.
5. Benefits for widows and widowers are more flexible
Social Security does a good job of explaining widow and widower benefits, but it doesn’t clearly spell out a key difference between widow/widower benefits and spousal benefits.
A widow or widower can start collecting Social Security benefits their own earnings record, then switch later to survivors benefits.
Or, they can begin with survivors benefits and later switch to benefits their own earnings record — even if they are filing before full retirement age. You can’t do that with spousal benefits anymore.
An exception is made for those who turned age 62 prior to January 2, 2016 – before Social Security changed the rules.
In other words, a widow can begin drawing survivors benefits on her late husband’s Social Security when she is as young as 60, but only at a reduced rate. Then she can choose to leave her own Social Security alone, allowing it to grow in value until her full retirement age, or even age 70. This works for widowers, too.
6. Use a lawyer for an SSDI application
When you apply for Social Security Disability Insurance, or SSDI, your first step should be to hire a lawyer or other expert adviser.
Allsup, a private firm that advises people about how to get SSDI, says Social Security doesn’t make it clear that an applicant can have representation from the very beginning of the application process.
Two-thirds of SSDI applicants who file on their own are denied, according to some estimates. Another site that can match you up with SSDI attorneys in your area is DisabilitySecrets.com, which is run by NOLO.
7. The magic number is 35
The Social Security website offers an explanation of how your benefits are calculated, but it’s difficult to follow. A simpler explanation can be found at MyRetirementPaycheck.org, which is sponsored by the National Endowment for Financial Education.
Your Social Security payment is figured using a complex calculation a 35-year average of your covered wages. Each year’s wages are adjusted for inflation before being averaged.
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If you worked longer than 35 years, the government will use the highest 35 years. If you worked fewer than 35 years, the government will average in zeros for the years you are lacking.
You don’t have to be a math genius to figure out the impact of that — it drags down your average. If you can avoid zeros by working longer, you’ll increase your Social Security payment.
More from Bankrate:
When to Take Social Security Benefits: 62, 67 or 70?
Turning 62 might not sound a milestone birthday, but it is: That’s the earliest age the Social Security Administration (SSA) allows individuals to begin taking benefits from the system.
Still, that doesn’t mean you should jump at the chance the minute this checkered flag waves.
Age matters. Claiming Social Security early at 62 will result in a reduced monthly benefit compared to how much you're eligible to receive at full retirement age (66 or 67 for most people). Put off drawing benefits until age 70 and your monthly take will increase by as much as 8% a year.
5 factors to help you decide
An 8% annual bump in Social Security benefits is a pretty big incentive to put off filing for benefits. But there are other considerations:
Your “full retirement age.” Although individuals are eligible to start collecting benefits starting at 62, only when you reach Uncle Sam’s definition of full retirement age will the SSA pay 100% of your benefits. For those born in 1960 or later, it’s age 67. (If you were born before 1960 see the SSA table to find out when you can celebrate.)
You can certainly retire before then, but the amount you get each month will be reduced a fraction of a percent for each month you started taking benefits early.
For someone whose full retirement age is 67, starting benefits at age 62 means taking a nearly 30% monthly hit. Conversely, pushing the date forward earns you delayed retirement credits (up to age 70) and increases the size of your monthly Social Security check by 32%.
» CALCULATOR: How much money will you need to retire at 67?
How hearty your family tree is. If you come from healthy genetic stock — lots of relatives who became octo- and nonagenarians — and you expect to live long and prosper, too, waiting to file may be the better way to go. Extra padding on Social Security checks can come in handy if there’s a good chance you might outlast the rest of your investment income.
But filing early can ease the financial burden if you’re dealing with pricey health issues, especially if you stop working and lose access to employer-provided health insurance before you’re covered by Medicare.
Also, if those health issues make it unly you’ll live into your 70s, waiting to take benefits may simply not be worth it — unless you’re looking to boost your surviving spouse’s future benefits.
(There’s more on this below.)
Whether you’re still working. You can continue to work and still get your full benefits once you reach your full retirement age.
Before that, some of your benefits may be withheld, depending on how much you earn above the annual limit. (For 2020 the limit is $18,240 for individuals who won’t reach full retirement age during the year.
) You’ll still get credit for those earnings and the SSA will recalculate your benefit when you reach full retirement age.
“A spouse in poor health may want to start benefits early while the healthier one delays filing. ”
If you’re eligible for benefits on someone else’s record. If you’re half of a twosome — even a divorced twosome — the effect of all of the issues above should be considered for both parties and, if living together, on you as a couple.
For example, a spouse in poor health may want to start benefits early while the healthier one delays filing.
Or if you’re the higher earner, you may want to delay to receive a heftier benefit while you’re still alive and, if you die first, a higher survivor protection for your spouse.
If you want to invest the cash. Nowhere does it say you’re required to spend the money you get from Social Security. You can invest it in stocks, bonds, real estate or whatever. (We lay out some of your options In “How to Invest Money.”)
One investment-related thing you cannot do with Social Security money is count it as “earned income” in order to qualify for an IRA. However, you can still invest via a regular taxable account.
Just remember that in the short-term some investments can be very volatile and not appropriate for any cash you know you’ll need in the near term (the next five years or so).
Weigh that against the guaranteed return you would get on your money by waiting to file and amassing more delayed retirement credits.
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Think it through and get a second opinion
Deciding when to flip on the Social Security benefits switch isn’t a decision to make lightly. Once you start taking benefits, the amount you receive sets the base for how much you’ll get for the rest of your life. Also, annual cost of living adjustments (COLA) will be that amount.
For context, the average monthly Social Security benefit paid out in 2020 was just over $1,500. For today’s seniors, that represents a major income artery — roughly one-third of the money they have to live off of, according to SSA data.
» MORE: Could you get by on the average retirement income?
You get one do-over in your lifetime: If you start receiving Social Security benefits, then decide you can hold out longer to get a higher payout, there’s a 12-month window to change your mind and repay the money you’ve already received.
Not sure where you stand today? The SSA Retirement Estimator provides a ballpark benefit amount your actual Social Security earnings record.
If you find you have more questions on Social Security issues, a certified financial planner can help you run through various scenarios taking into account the income streams available to you, ongoing investment returns, taxes and other parts of retirement planning.
» MORE: How to choose a financial advisor
Deciding when to take Social Security is a decision that will affect the rest of your life. Hiring a pro to talk you through the options can be a worthy investment.