When is the best time to start receiving your Social Security benefits? Determining your “full retirement age” will help you answer this question.
In previous years you could retire early by collecting reduced benefits starting at age 62, or you could delay until you turned 65. Currently, depending on when you were born, you will not reach full retirement age until between 65 and 67. People born in 1937 or earlier reach “full retirement age” at 65. From 1938 on, it increases slowly to age 67. For those born in 1960 or later, it is at age 67. Only when you meet the Social Security Administration’s (SSA) definition of full retirement age will you receive 100% of your benefits.
You can surely retire before your full retirement age but the amount you get each month will be reduced for each month you started taking benefits early. For example: you retire this year at 62, having worked 40 years and ending your employment with a yearly salary of $85,000. Your benefit would be approximately $1,555 a month, according to SSA.gov. But if you could hold-off until 66, your full retirement age, you’d get roughly $2,094 a month. At 70, it would be closer to $2,850.
An 8% annual increase in Social Security benefits is a big reason to delay filing for benefits. There are other considerations. Here are five things to consider when deciding on the right age to start collecting benefits.
Earning a wage may reduce your benefit temporarily if you take Social Security early. If you’re still employed and you haven’t reached your full retirement age, $1 in benefits will be deducted for every $2 you earn above the annual limit ($17,040 individual in 2018).
Starting the month you reach your full retirement age, your benefits are no longer reduced regardless of how much you earn. You will still get credit for those earnings and the SSA will recalculate your benefit when you reach full retirement age.
There is no reason why you cannot claim early and invest that money in real estate, stocks, bonds or anything else that may be a sound investment. For instance, if you claim early, invest in the stock market and average an 8% annual return – which is far from guaranteed – you will almost certainly come out ahead compared with claiming late, according to an analysis by Dan Caplinger, director of investment planning for Motley Fool. This strategy has risks and does not work for most people, but it is important to know this is an option if you are one of the few savvy investors.
Your Family History
If you come from a long line of nonagenarians and you expect to live a long life as well, then waiting to file may be a better option. Heftier Social Security checks will be crucial if it is likely that you will outlive your other sources of income.
However, filing early can make things easier if you’re dealing with expensive health issues. If you believe those health problems will shorten your average life span, then waiting to take benefits may not make sense for you.
Spouses who did not earn enough credits to qualify for Social Security on their own are eligible to receive benefits starting at age 62 based on their spouse’s employment history. As with claiming benefits on your own record, your spousal benefit will be reduced if you claim benefits before reaching full retirement age. The highest spousal benefit you can receive is fifty percent of the benefit your spouse is entitled to at their full retirement age.
Make an Informed Decision
You don’t have to claim Social Security benefits just because you turn 62. If you are in good health and have other sources of income to keep you going, then waiting until you are 70 may be the best thing for you. This ensures the maximum payment for yourself and secure the maximum payment for your spouse. Ideally, your Social Security benefits should be one of several sources of income which you have set up over the course of your lifetime. One of the best ways to make an informed decision about retirement planning is by consulting a financial advisor and a licensed attorney to ensure your hard earned money continues to grow and is legally protected.