Identifying the Right Time to Start Taking Social Security

What is full retirement age to collect Social Security?

Previously, you could retire early and begin collecting reduced benefits at age 62. Otherwise, you could wait until you were 65 to collect. Now, however, depending on the year you were born, many people won’t reach full retirement age until age 65, 66, or even 67. People born in 1937 or earlier, reach full retirement age at 65. For those born in 1938 or later, the magic age rises gradually to 67.

How do you know which option is right for you?

When trying to determine which option is right for you, consider a number of variables, including life expectancy, finances, and even gender and marital status.

It is important to understand why and when you should delay your benefits. For one, you can lock in an even higher monthly check. So, if you’re planning to work during retirement, you may want to delay receiving benefits as earnings could negatively affect the amount you receive.

In other instances, however, taking early benefits will pay off. Say, you start collecting at the earliest age (62 years old). Although you’ll receive a permanently reduced benefit, you could collect more overall if you live long enough to offset the reduction.

In some cases, you may have a good reason to take early benefits. For example, if you’re facing a potentially significant reduction in life expectancy and you’re short of income, taking the benefits early is appropriate.

According to a 2005 study by economists at the Center for Retirement Research at Boston College, married women also may want to claim early benefits. Women tend to outlive husbands, so they will be eligible to receive the greater of either their or their husband’s benefit.

What do financial advisers say?

Overwhelmingly, financial advisors say it’s best to postpone receiving Social Security benefits for as long as possible, at least until your full retirement age as determined by the Social Security Administration (SSA).

SSA produces a chart visually highlighting how taking your benefits early can cost you. For instance, your benefit is reduced by about 30 percent if you start collecting at age 62, but if you start collecting at 66, the reduction is only 6.7 percent. Look at this another way: if you postpone Social Security until age 67, you’ll receive 108 percent of your monthly benefits, and by waiting until age 70, you’ll reap 132 percent of your monthly stipend.

Financial experts also say you should consider Social Security as a stream of payments that won’t stop throughout your lifetime. Thus, delaying benefits keeps them as large as possible, ultimately helping your retirement plan.

In fact, knowing that many of us have undersaved for retirement, advisers suggest that this is one way to boost future income. Working longer and delaying Social Security, they note, not only saves money because you’re not drawing down from your retirement accounts, but also potentially adds more to your account by enabling you to collect larger Social Security benefits. And there is another plus to working longer: Medicare. You’ll be eligible for this federal health insurance benefit at age 65, and you won’t have to buy supplemental insurance to bridge the gap when your company’s benefits dry up.

If you do work during retirement and delay collecting Social Security, that’s great, but if you earn too much at that job and are drawing benefits, it can negatively affect Social Security. By postponing drawing benefits, you won’t adversely affect them.

There’s no one right age that’s appropriate for everyone. Consider your own financial needs, health, and postretirement plans as you make this decision, and call us for additional help as you weigh the best option.

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