One of the most important decisions you will make about your retirement is when to start collecting Social Security benefits. It’s a decision that can have a big impact on your finances for the rest of your life. Social Security is a government program designed to provide a source of income for people who are retired or disabled. It’s something most working Americans contribute to throughout their careers, and when you reach a certain age, you can start receiving these benefits.
But when is the best time to start collecting Social Security? Is it better to start as soon as you’re eligible, or should you wait a few years to maximize your benefits? In this blog, we’ll walk you through the key factors to consider, so you can make an informed decision about when to start collecting your Social Security benefits.
Understanding the Basics of Social Security Benefits
Before we get into when you should start collecting Social Security, let’s first understand how it works.
Eligibility
You become eligible to start receiving Social Security retirement benefits as early as age 62. However, this is considered “early retirement,” and if you choose to collect benefits at this age, your monthly payments will be reduced compared to what you would receive if you wait until full retirement age (FRA). Full retirement age is between 66 and 67, depending on the year you were born.
Full Retirement Age (FRA)
Your full retirement age (FRA) is the age at which you qualify for your full Social Security benefit. Here’s a breakdown of full retirement age based on your birth year:
- If you were born before 1954, your FRA is 66.
- If you were born between 1955 and 1959, your FRA is 66 years and a few months.
- If you were born in 1960 or later, your FRA is 67.
Delayed Retirement Credits
If you wait to start receiving benefits after your full retirement age, your benefits will increase by a certain percentage each year you delay, up until age 70. This is known as delayed retirement credits, and waiting can result in a larger monthly check.
Reduced Benefits for Early Retirement
On the other hand, if you start collecting benefits before reaching your FRA, your benefits will be reduced. For example, if you start at age 62, you might only receive about 70-75% of your full benefit amount.
Now that you know the basics, let’s look at some factors to consider when deciding the best time to start collecting Social Security.
Factors to Consider When Deciding When to Collect
1. Your Health and Life Expectancy
One of the most important factors to consider is your health and expected lifespan. If you’re in poor health or have reason to believe you might not live long into retirement, it may make sense to start collecting benefits early. Even though the monthly amount will be smaller, you’ll receive benefits for a longer period of time.
On the other hand, if you’re in good health and have a family history of longevity, waiting to collect benefits could pay off. By delaying until after your full retirement age, you can receive a larger benefit, and if you live a long life, that extra monthly income can add up.
2. Financial Needs
Your current financial situation also plays a major role in deciding when to collect Social Security. If you need the money to cover living expenses, starting your benefits at age 62 could make sense, even though it will result in a lower monthly payment. If you have other sources of income, such as savings, pensions, or investments, you might be able to afford to delay taking Social Security until you reach your FRA or beyond.
For people with limited savings or no other sources of retirement income, collecting Social Security early may be a necessity. However, keep in mind that starting benefits early will lock in a lower payment for the rest of your life.
3. Spousal Benefits
If you’re married, your decision about when to start collecting Social Security may also affect your spouse. Social Security provides spousal benefits, which allow a spouse to collect up to 50% of their partner’s benefit. If you delay collecting your own benefit, it could result in a higher spousal benefit for your partner.
Additionally, if your spouse is expected to outlive you, delaying Social Security could ensure they receive a higher survivor benefit after you pass away.
4. Employment Status
Are you still working? If you plan to continue working while collecting Social Security, you’ll want to be aware of how your income can affect your benefits. If you start collecting before your full retirement age and continue to work, your Social Security benefits may be reduced based on how much you earn.
In 2024, for example, if you’re under full retirement age and earn more than $21,240, Social Security will reduce your benefit by $1 for every $2 you earn above that limit. However, once you reach full retirement age, there’s no limit on how much you can earn while collecting benefits.
5. Break-Even Analysis
Many people use a “break-even analysis” to help decide when to start collecting Social Security. This involves comparing the total amount of benefits you would receive if you started collecting early versus if you waited. While collecting early means smaller monthly payments, you’ll receive them for a longer period of time. On the other hand, delaying benefits results in larger monthly payments but fewer total payments over your lifetime.
A break-even point is the age at which the total benefits received from delaying Social Security surpass the benefits you would have received by starting earlier. If you live past this break-even point, delaying benefits can result in a higher total payout over your lifetime.
The Pros and Cons of Collecting Early vs. Waiting
Let’s weigh the advantages and disadvantages of collecting Social Security early versus delaying.
Pros of Collecting Early (Before FRA)
- You receive benefits for a longer period of time.
- It can help cover living expenses if you need the money now.
- You can stop working sooner if you desire.
- In the case of poor health, you can make sure you enjoy benefits while you can.
Cons of Collecting Early
- You’ll receive a reduced monthly benefit for life.
- You may miss out on delayed retirement credits that could boost your benefits.
- Your benefits may be reduced if you continue to work.
Pros of Delaying (After FRA)
- You’ll receive a larger monthly benefit for life.
- If you live a long life, delaying can result in significantly higher total benefits.
- Spouses and survivors may receive higher benefits based on your decision.
Cons of Delaying
- You’ll receive benefits for a shorter period of time.
- You may need to rely on other income sources until you start collecting.
- If you pass away earlier than expected, you may not receive as much in benefits.
Conclusion
When to start collecting Social Security is a personal decision that depends on a variety of factors, including your health, financial situation, and retirement goals. There’s no one-size-fits-all answer. However, by carefully considering the pros and cons and evaluating your own circumstances, you can make an informed decision that helps you maximize your benefits and enjoy a comfortable retirement.
If you’re unsure, speaking with a financial advisor can provide additional insight and help you choose the best path for your situation.
