"When should I take my Social Security retirement benefits?"
This is a very common question for those about to retire. The answer is complex and depends on your individual situation.
- If you take your benefits early, you start getting paid earlier but at a reduced rate.
- If you take your benefits on time, you have to wait a few more years but you’ll get a larger monthly check.
- If you take your benefits later, your monthly benefit will increase even further.
To help you get a grasp of what to do:
Here’s some basic information about Social Security retirement benefits and a few factors you should consider when deciding when to take your benefits.
When You Can Take Social Security Benefits
The earliest age you can take traditional Social Security retirement benefits is age 62. This age is not impacted by when you were born.
The latest age it makes sense to start taking Social Security retirement benefits is age 70. You no longer receive extra benefits for delaying taking benefits beyond age 70.
Things get complicated when it comes to figuring out your full retirement age.
Your full retirement age varies depending on the year in which you were born.
Here are the current full retirement ages (for 2019) based on the year of your birth.
How to determine your full retirement age
|For those born in...||Your full retirement age is...|
|1943 to 1954||66 years|
|1955||66 years and 2 months|
|1956||66 years and 4 months|
|1957||66 years and 6 months|
|1958||66 years and 8 months|
|1959||66 years and 10 months|
|1960 or later||67 years|
Early at age 62 to just before retirement age
Your benefits will be reduced if you start receiving your Social Security retirement benefits before your full retirement age.
The amount it will be reduced by varies by how early you retire.
If you retire 36 or fewer months early, your benefits will be reduced by 5/9 of one percent for each month you claim benefits before full retirement age.
That’s a 6.67% reduction each year.
If you retire more than 36 months early, the benefit reduction slows down for months 37 and on.
After month 36, your benefits are reduced by 5/12 of one percent each month you claim benefits early.
That’s a 5% reduction each year.
If your full retirement age is 67 and you retire at 62, your benefit would be reduced by 30% leaving you with 70% of the full retirement age benefit.
On-time at ages 66-67
When you reach your full retirement age, figuring our your Social Security benefits is easy.
You get the full amount you’re entitled to.
Depending on your year of birth, you’ll reach full retirement age between ages 66 and 67.
Late up to age 70
If you take Social Security retirement benefits after you reach full retirement age, your benefit will be increased.
The amount will increase by 8% each year, or 0.67% each month, you delay retirement beyond your full retirement age.
The increased benefit stops accumulating once you reach age 70.
Just like with early retirement, this age doesn’t vary based on your birth year.
How to Decide
Deciding exactly when to receive benefits can be difficult even for trained professionals.
Balancing the desire to take benefits early with the tradeoff of a reduced benefit may be tempting to get extra cash as soon as possible.
It may also be tempting to delay benefits to receive a higher monthly benefit for the rest of your life.
So how do you decide which is right for you?
There are many factors to consider.
Your life expectancy
To optimize your Social Security benefits, you’d need to know when you’re going to die.
Fortunately, no one knows when they’re going to die as that would be a major burden. On the other hand, it makes figuring out when to take Social Security benefits a bit harder.
Instead, you can find ways to calculate your life expectancy. After you find your life expectancy, you can run the numbers.
To do this:
Add up the benefits you’ll receive over your remaining life for each possible start date for claiming Social Security benefits.
This will allow you to see when claiming Social Security benefits would provide you with the most income over your remaining expected life.
This process can be complicated because each possible start age will result in a different monthly benefit.
Even so, your financial planner should have software to run the numbers for you to figure out the best long term decision.
Need for income now
Even though it makes sense to optimize your lifetime Social Security benefits, sometimes you can’t wait.
If you’re desperate for income and have no other options, sometimes people end up taking Social Security early.
This can result in a much-reduced benefit if you have a long life expectancy.
This option becomes a reality for those that have no other choice but taking Social Security retirement benefits early.
Are you still working?
If you’re still earning wage income, called earned income of tax purposes, your Social Security retirement benefits may be reduced if you take your benefits early.
Until you reach full retirement age, the amount of earned income you can earn is limited.
In 2019, you can earn up to $17,640 each year without reducing your Social Security retirement benefits.
If you earn more than $17,640, your Social Security retirement benefits will be reduced by $1 for each $2 you earn over that limit.
Once you reach full retirement age, you can earn as much earned income as you’d like.
It won’t reduce the amount of Social Security retirement benefits you’re paid.
Your other retirement assets and income sources
Your other assets, like retirement plans, and retirement income, like pensions, can influence when you take your Social Security retirement benefits.
If you have enough assets, like money in a Roth IRA, and pension income to live off of you may be able to delay taking your benefits.
It may make sense to do so if you can afford to wait.
Delaying your benefits beyond full retirement age gives you a guaranteed 8% increase in benefits for the rest of your life.
It’s hard to find a guaranteed 8% return anywhere else.
Let’s say a person’s full retirement age is 67. That person waits until age 70 to take benefits. Their monthly Social Security retirement benefit will be 24% higher than if they took it at age 67.
That can make a huge difference in a monthly budget.
Your spouse’s Social Security retirements benefits could play a huge factor in your decision.
It may even affect when you decide to take your benefits, as well.
If your spouse’s benefits are significantly less than yours, it may make sense to have them claim off your benefits. This is complex and requires passing many tests to make it work, but it can be worth looking into further.
If spousal benefits are taken at full retirement age, your spouse will receive 50% of your benefit.
Additionally, if you die, your spouse can take surviving spouse benefits. These benefits can be equal to 100% of your benefits if your benefits are higher than your spouse’s.
This is important because your surviving spouse cannot take both their own and your benefit.
You Must Decide What’s Best for Your Finances
Each person’s and couple’s situation is unique.
Each situation requires you to balance the factors mentioned above.
You’ll need to consider unique factors for your specific situation, too.
Ideally, each person would pick the option that gives them the highest payout over the rest of their life. Life doesn’t always work out this way, though.
Make sure you first understand all of the Social Security retirement benefit calculations. This will allow you to make the best decision possible.
These calculations include:
- How much your benefit will be at each age
- How much your spouse’s benefit will be at each age
- Whether your spouse’s benefit would be higher by taking spousal benefits
- Whether your benefit would be higher by taking spousal benefits from your spouse
After you understand your options, it’s time to decide what works best for you.
There are many ways you can use your current assets and future Social Security retirement benefits to maximize your retirement strategy.
Consider a financial planner
Meeting with a fee-only fiduciary financial planner can help you come up with a strategy.
The strategy should be what works best for you and your specific situation.
This customized advice is often well worth the cost. It may even give you some peace of mind about your decision.