Deciding when to start taking social security benefits is a crucial part of financial planning for retirement. The timing can greatly affect the amount of benefits one may receive. It involves understanding the implications of 'early' or 'delayed' retirement, evaluating personal life expectancy, and considering financial needs and other sources of income. This understanding can help optimize the benefits and ensure one's financial security later in life.
In This Insight
What is the best age to take Social Security benefits?
Is it better to take Social Security at 62 or 70?
Do Social Security benefits increase between 66 and 70?
How does your health affect when you should take Social Security?
How does your marital status influence when you should start receiving Social Security benefits?
What is the best age to take Social Security benefits?
Age plays a significant role when deciding when to begin collecting Social Security benefits. Many people are eligible to start receiving benefits as early as age 62. However, taking benefits at this age involves a reduction in monthly payments. This is because benefits are reduced for each month before one's Full Retirement Age (FRA). This reduced benefit can be a major disadvantage for those who expect to live a long life as it results in lower lifetime benefits. Additionally, those who are still working at 62 may face Social Security earnings limit, which would cause a further reduction in benefits. In general, it's not advised to take Social Security before FRA if you are still working full-time. The Full Retirement Age (FRA) is the age at which you are entitled to "full" Social Security benefits (not necessarily the maximum benefit though). Your FRA is dependent on your birth year. For individuals born in 1955, the age is 66 and two months. For individuals born after 1955, the age threshold slowly increases to 67 for those born in 1960 or later.
If one waits until the FRA to start collecting benefits, they will receive the full PIA (Primary Insurance Amount), which is the benefit a person would receive if they elect to begin receiving benefits at their FRA. If a person has enough savings or a stable income to sustain themselves until their FRA, then waiting until this age to collect benefits may be the most beneficial route. Waiting until after FRA to begin collecting Social Security benefits can yield even higher monthly payments. This is due to Delayed Retirement Credits that the Social Security Administration adds for each month that claiming is postponed beyond the FRA. The increase from Delayed Retirement Credits is also dependent on your birth year and ranges from 3% for those born between 1917-1924 up to 8% for those born in 1943 or later. Therefore, for those who are in good health and expect to live longer, delaying benefits until age 70 can potentially offer the highest lifetime benefits.
Is it better to take Social Security at 62 or 70?
Selecting the appropriate age to start receiving Social Security benefits is often dependent on individual circumstances and needs. Collecting at the age of 62, which is the earliest possible age, reduces the overall monthly benefit but extends the total length of receiving these funds. This option might be beneficial for those who require immediate income or foresee a shorter lifespan due to health concerns. However, taking benefits early add complexity to other potential retirement strategies, such as Roth IRA conversions, which may be valuable depending on your circumstances.
Delaying Social Security until the age of 70 increases the monthly instalments substantially. Thus, if you have a good health status and anticipate a longer lifespan, waiting until 70 years can result in larger overall benefits. Balancing the pros and cons is a complex process, and we recommend a free consultation with our affiliate investment advisor, Selective Wealth Management. Selective has years of experience helping clients navigate the proper time to draw social security.
The decision to start receiving Social Security benefits depends on individual health status and financial needs, with a choice to begin these at age 62 leading to lower monthly benefits for a longer period, and delaying until age 70 resulting in larger payments.
Do Social Security benefits increase between 66 and 70?
It's a common misconception that full retirement age (FRA) is when you receive your maximum benefit. However, the FRA determines when you receive a "full" benefit or Primary Insurance Amount, not maximum. You can receive more than your "full" benefit by delaying beyond FRA. The benefits for waiting are known as Delayed Retirement Credits, which can amount to as much as 8% per year depending on your birthday. The increase in benefits from these credits is dependent on your birth year with all individuals born in 1943 or after receiving approximately 8% per year from your FRA until age 70. So, if your FRA is 66 and you delay taking benefits until 70, your monthly benefit could be 32% higher.
How does your health affect when you should take Social Security?
Contemplating your current health status is a significant part when deciding on the optimal time to start claiming Social Security benefits. While the Social Security Administration allows individuals to begin collecting reduced benefits as early as age 62, the monthly payout increases for each year you delay until age 70. For those in good health and with a longer life expectancy, it may be beneficial to wait till 70 to maximize the monthly benefits. Conversely, if an individual has a severe health condition or a family history of shorter life span, they might opt to begin benefits at an early age. Delaying Social Security provides a guaranteed increase in benefits. Each year you postpone, benefits will grow by about 8%. That could be a significant boost for individuals who are in excellent health and expect to live well into their 80s or 90s. The extra income could substantially help cover medical costs that often rise as individuals age. Moreover, if longevity runs in your family, delaying benefits might be the right choice in order to maximize lifetime benefits. However, individuals in poor health, or those who have a family history of serious health issues may choose to collect Social Security benefits earlier. Although the monthly payout will be lower than if they waited till age 70, the total amount collected over their lifetime could be higher. The breakeven point generally falls between age 78 to 82; if an individual expects to live past this breakeven point, delaying may be beneficial. Otherwise, taking benefits early could offer the greatest financial advantage.
Your health status and life expectancy form key elements in deciding when to begin claiming Social Security benefits, with those in good health likely benefiting from delaying until age 70, while those with health issues may find financial advantage in starting early.
How does your marital status influence when you should start receiving Social Security benefits?
Marital status plays a role in when one should begin receiving Social Security benefits. If you are married, options exist that are not available to single individuals, like spousal or survivor benefits. These benefits allow one spouse to claim a percent of the other spouse's Social Security benefits, a choice that requires careful consideration. For instance, if the higher-earning spouse delays taking their benefits until 70, the amount of the survivor benefit will be maximized, ensuring the lower-earning spouse is adequately protected financially should the former pass away first. Even divorced individuals might access spousal or survivor benefits, provided the marriage lasted at least ten years, and they remain currently unattached. Like with married individuals, the strategic delay of claiming benefits by the higher-earning former spouse bolsters the potential payout in benefits. Surviving spouses, on the other hand, can choose between claiming survivor benefits or their own benefits, whichever is more significant. They can claim one type while allowing the other to grow and switch later if it is beneficial. Whether you are single, married, divorced, or widowed there are different Social Security strategies that you can take advantage of.
Marital status plays a crucial role in determining when and how to best claim Social Security benefits, offering different strategies for married, divorced, or widowed individuals to maximize their retirement income.
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Final Thoughts
Determining the right time to claim Social Security benefits depends on factors like personal health, marital status, and financial needs. Recognizing that benefits can reasonably start anywhere from age 62 to 70, with an increase if you wait between ages 66 and 70, is crucial. Health status can impact the decision, with those in poor health sometimes choosing to take benefits earlier. Similarly, marital status can influence the choice, as some strategies could maximize the benefits for couples. It's essential to understand these elements to make an informed decision on when to take Social Security.