A common question asked when planning for your retirement is “what age should I take my Social Security benefits?” I think there is a better question to ask yourself which is “do I want to have more money earlier or later in retirement?” Timing does matter in retirement. Once you put a little thought into what you want your retirement to look like the answer will be much easier to select than it might seem.
You can start taking Social Security benefits anywhere between ages 62 and 70. Your full retirement age (FRA) is when you are entitled to your full retirement benefit. This could be between the ages of 66 or 67 depending on the year you were born. Age 66 between the years 1943-1954. For those born from 1955-1959 it staggers by 2 months each year. For example if born in 1955 your FRA is 66 and 2 months, 1956 your FRA is 66 and 4 months, etc. It is age 67 for 1960 and later. The earliest you can claim Social Security benefits is at age 62, but if you claim benefits before your FRA the amount of your monthly benefits will be reduced by 30%. If you wait to collect Social Security after your FRA you are entitled to additional delayed benefits. These additional benefits would increase your monthly benefits by 8% for every year you delay up until age 70. The decrease or increase in monthly benefits is permanent. This decision will set the base line of income you will receive for the rest of your life. With that said there are cost of living adjustments (COLA) every year that will bump up your benefit over time in an effort to keep up with inflation.
When looking to make a decision on when you might want to take your benefits, you could look to see what your “breakeven age” is. Your “breakeven age” is the point at which your delayed Social Security benefits catch up to the total amount of early benefits you could receive if you elected to start receiving benefits early. It is true that you will receive larger monthly benefit amounts if you wait until the delayed retirement at age 70, but you will receive fewer of them. You are able to collect a larger amount of total Social Security benefits if you delay your retirement age compared to someone who decided to collect early. If you apply for benefits early you get a head start and will be able to collect more monthly benefits earlier in your retirement. The breakeven age is between 77-81 years old for all eligible recipients of Social Security benefits. Between the ages of 77 and 81 is where you would see the amount of delayed benefits collected be greater than if you had elected for early benefits. This is an important analysis to review as it can allow you to see what age might make the most sense for your specific retirement goals and needs.
After looking at your own individual breakeven age for early, FRA, and delayed benefits you should look to factor in certain considerations that are specific to your own situation. One of those is life expectancy. You should consider your health and family history when deciding the age to collect. If collecting the most benefits from Social Security is a priority and longevity runs in your family you might want to wait to collect at age 70 and delay your benefits. Social Security can only be passed to your spouse. This means that the survivor gets the higher of the two benefits received and stops the lower benefit. A second consideration could be to continue working to keep your companies health insurance plan until you are at least 65 and can then qualify for Medicare. A third consideration is lifestyle. You might want to retire as soon as possible and collect benefits as early as possible to spend time with friends and family. You might wish to fulfill travel goals or hobbies while you are still young enough and active to enjoy the extra money earlier during retirement. When you retire before beginning to collect Social Security you will need to use your own assets to fund retirement. These assets can be passed on to heirs unlike Social Security benefits. These could all be driving decisions that impact what age you decide to take your Social Security benefits.
When deciding what age to take social security benefits keep in mind that this is more of a fluid answer rather than a definite best option for all retirees. Each strategy has their own pros and cons and can be used to help maximize the retirement that you desire.
