You might be able to increase your lifetime income by delaying your benefits as long as you can. These insights can help you decide if it’s the right move for you.
Social Security benefits matter, even for Americans who have diligently saved for retirement over the years. When it comes to retirement, one of the first major choices we have to make is when to start collecting our benefits, and timing is crucial. Although you can begin as early as age 62, delaying until a few more years or until you reach full retirement age will significantly boost the total amount you receive over the course of your lifetime. See âFind Your Full Retirement Ageâ below.
Ben Storey, director of Retirement Research and Insights at Bank of America, and I recently had a conversation to hear his most recent thoughts on the factors that should be taken into account when making your choice.
Choosing the right time to claim Social Security benefits is a crucial decision that can significantly impact your retirement income. While you can start receiving benefits as early as age 62, delaying your claim can result in a higher monthly benefit amount. This guide explores the factors to consider when determining the optimal age to take Social Security, helping you make an informed decision that aligns with your individual circumstances.
Understanding Social Security Benefits
Social Security is a federal program that provides retirement, disability, and survivor benefits to eligible individuals. The program is funded by payroll taxes paid by both employers and employees. Your Social Security benefits are based on your lifetime earnings, and the amount you receive depends on your age when you start claiming benefits.
Full Retirement Age and Benefit Increases
Your full retirement age (FRA) is the age at which you are eligible to receive full Social Security benefits. This age varies depending on your birth year, ranging from 66 to 67 for individuals born between 1943 and 1960. If you claim benefits before your FRA, your monthly benefit amount will be permanently reduced. Conversely, if you delay claiming benefits beyond your FRA, your monthly benefit amount will increase.
Here’s a breakdown of benefit increases for delaying Social Security:
- Age 62: Your benefit amount is reduced by 25% compared to your full benefit at FRA.
- Age 63: Your benefit amount is reduced by 20% compared to your full benefit at FRA.
- Age 64: Your benefit amount is reduced by 13.3% compared to your full benefit at FRA.
- Age 65: Your benefit amount is reduced by 6.7% compared to your full benefit at FRA.
- Age 66 (FRA): You receive your full benefit amount.
- Age 67: Your benefit amount increases by 8% compared to your full benefit at FRA.
- Age 68: Your benefit amount increases by 16% compared to your full benefit at FRA.
- Age 69: Your benefit amount increases by 24% compared to your full benefit at FRA.
- Age 70: Your benefit amount increases by 32% compared to your full benefit at FRA.
Example:
Let’s say your full retirement age is 67 and your monthly benefit at that age is $1,000.
- If you claim benefits at age 62, your monthly benefit would be $750 ($1,000 x 0.75).
- If you delay claiming benefits until age 70, your monthly benefit would be $1,320 ($1,000 x 1.32).
Factors to Consider When Choosing the Best Age to Take Social Security
1. Life Expectancy:
One of the most important factors to consider is your life expectancy. If you have a longer life expectancy, delaying your claim can result in receiving more total benefits over your lifetime. This is because you will receive a higher monthly benefit for a longer period.
2. Health:
Your health status also plays a role in determining the optimal age to claim Social Security. If you have health concerns and expect a shorter lifespan, claiming benefits earlier may be beneficial to ensure you receive benefits for a longer period.
3. Financial Needs:
Your current and future financial needs should be factored into your decision. If you have limited savings or other retirement income sources, claiming benefits earlier may provide much-needed financial support. However, if you have a comfortable retirement nest egg, delaying your claim could allow your savings to grow and provide a larger income stream in the future.
4. Investment Returns:
If you have investments, consider their potential returns compared to the guaranteed growth of your Social Security benefits. If you expect your investments to generate higher returns than the Social Security benefit increase, claiming benefits earlier and investing the money could be a viable option.
5. Marital Status:
Your marital status can also influence your decision. If you are married, claiming benefits earlier could provide additional income for your spouse in the event of your passing. Additionally, survivor benefits may be available to your spouse if you die before claiming Social Security.
6. Work Status:
If you plan to continue working after claiming Social Security, your earnings may impact your benefits. If you earn above a certain threshold, your benefits may be reduced or temporarily suspended.
Determining the best age to take Social Security is a personal decision that requires careful consideration of various factors. By understanding the impact of delaying your claim, your life expectancy, health, financial needs, and other relevant factors, you can make an informed choice that aligns with your individual circumstances and retirement goals.
Frequently Asked Questions
1. What is the maximum age to claim Social Security benefits?
There is no maximum age to claim Social Security benefits. However, delaying your claim beyond age 70 does not result in any further benefit increases.
2. Can I change my mind about when I claim Social Security benefits?
Yes, you can change your mind about when you claim Social Security benefits. You can withdraw your application and file again later. However, if you have already received benefits, you may have to repay some of the money you received.
3. What happens to my Social Security benefits if I die?
If you die before claiming Social Security benefits, your spouse or other eligible dependents may be able to receive survivor benefits.
4. How can I estimate my Social Security benefits?
You can estimate your Social Security benefits using the Social Security Administration’s online retirement estimator tool. This tool allows you to input your earnings history and other relevant information to receive an estimate of your future benefits.
5. Where can I get more information about Social Security?
You can find more information about Social Security on the Social Security Administration’s website. The website provides a wealth of resources, including information on eligibility, claiming benefits, and retirement planning.
Choosing the right time to claim Social Security benefits is a crucial decision that can significantly impact your retirement income. By carefully considering the factors outlined in this guide, you can make an informed choice that aligns with your individual circumstances and retirement goals. Remember, there is no one-size-fits-all answer to this question, and the best age to take Social Security will vary depending on your unique situation.
If you were born in 1960 or later . . .
You can claim full benefits at age 67.
If you continue to postpone benefits past your full retirement age until you reach 70, your final benefits will rise annually.
Merrill:Â Is waiting always the right answer?
Storey: Waiting longer may result in a larger payout over your lifetime, but what’s best for you might not be the same as what’s best for me. You have to think about your health and your family history. For example, if your parents and grandparents didn’t live past 75, if you’re single (or married and survivor protection doesn’t apply to you), or if your income from work isn’t very high, it might make sense to start receiving benefits at age 62.
You should also take into account your other retirement assets. If you claim your benefits early, you may be able to postpone taking income from your portfolio and give it more time to increase. Along with your immediate financial needs, consider your retirement goals and desired lifestyle. It’s possible that you’ll need to provide financial support and attention to a family member who needs care.
If, after youâve considered all the factors, you feel that claiming your benefits before age 70 makes sense for you, you shouldnât feel bad about not waiting. Social Security was conceived as a safety net. And itâs only valuable if you use it when you need it.