Imagine a decision that could mean the gain—or loss—of tens of thousands of dollars over the course of your life. Every day, retirees are faced with this crucial choice: when to start receiving their Social Security benefits. And it’s often more complicated than it might seem.
We don’t recommend you plan to depend on Social Security in retirement, but it’s still a good idea to know how to optimize your benefits when the time comes. We talked to several experts to help you decide on the best strategy for your circumstances.
Why Your Starting Age Matters
“It’s a personal decision—there is no one-size-fits-all approach,” says Bill Losey, a certified financial planner™ in upstate New York who specializes in counseling women and couples. “But think about waiting rather than grabbing your benefits as soon as you can, especially if you’re planning a long retirement.”
To understand why, the first thing you need to know is your full retirement age (FRA), which varies depending on which year you were born. Those born in 1954, for instance, have an FRA of 66. After that year, the FRA rises gradually until it reaches 67 for anyone born in 1960 or later. You can find your exact FRA with this calculator.
Social Security payments are based on a formula that takes into account your 35 highest wage-earning years. But payments are also affected by what age you start collecting benefits. Currently, the earliest you can begin claiming them is age 62. Taking your benefits early means you’ll get lower monthly payments than if you had waited for your FRA. You can also put off drawing benefits and earn higher payments for each extra month you wait until age 70. This table helps you see the differences in payments.
For example, let’s say your FRA is 67 and you waited until then to begin drawing your benefit of $1,200 a month. Your payment would be only $840 if you claimed your benefits early at age 62, but it would climb to $1,488 if you waited until age 70. And whatever amount you start with is the basis for all future cost-of-living adjustments, so the gap between the amounts widens over time.
That’s the reason experts generally advise waiting as long as possible to claim benefits. Yet a majority of people start their benefits early, especially women. Whether this is a smart move depends partly on how long you live. If you begin collecting benefits earlier, you get less money per month but for a longer period of time. If you start later, you get more money per month but for a shorter time period of time.
At some point, the numbers break even. And if you live after that point, you will have made more money overall by waiting longer to begin benefits at a higher rate. This break-even age is influenced by a number of factors but often falls in the late 70s. And Social Security Administration statistics show that a woman born in 1960 who reaches age 62 is likely to live into her mid-80s.
Still, some people choose to start their benefits at 62 in order to invest them. Lorrie Minor, certified financial planner™ for LearnVest Planning Services, says such investments would need to earn a 8% annual rate of return to match the benefit of delaying Social Security benefits. “Mortality and investment return are so hard to predict,” she says. “That’s why there’s no slam-dunk scenario. At the end of the day, when you should take your benefits is contingent on all these what-ifs.”
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What Should You Do?
No one knows how long she'll live, but there are some concrete factors you can consider when choosing when to claim benefits, including health, revenue sources and marital status. Let’s look at some different situations:
If you’re in poor health
This is one case where the experts agree you may want to start cashing out your benefits at age 62. If you’ve already had your share of health struggles or suspect you’ll develop a hereditary disease and don’t believe you will live well into your 70s, claiming your benefits may enable you to defray health expenses and make the most of your remaining years.
If you don’t have much saved up
We hope you never find yourself in this position (start saving for retirement now to make sure you don’t), but if you are low on savings, it’s even more important to boost your Social Security benefit as much as possible. “If you can still work, the best thing to do is to work and wait. Not only will you have less of a benefit reduction, but you will still be increasing your assets,” says Melissa Favreault, a senior fellow who researches Social Security policy for the Urban Institute, a think tank in Washington, D.C.
Of course, not everyone will be able to keep working up to their FRA. If you really need the money, experts say it’s better to take benefits early rather than sink deep into debt. If you eventually do find more work, your new earnings may lead to an increase in benefits.
If you plan to keep working part-time
You might think cashing out your benefits early won’t matter as much if you’re going to keep earning income. After you reach your FRA, working doesn’t affect your benefits, but beforehand, if you exceed certain income limits, you’ll have your Social Security benefits reduced. Once you reach your FRA, Social Security will start paying your full amount without reduction, so it’s not a permanent reduction. But since you will have lower benefits for a few years anyway, you may want to rely on your 401(k) to help tide you over until you reach your FRA or beyond, so you can score a higher monthly benefit.
If you’re single
Singles tend to have fewer expenses but also generally less income and savings than married couples. “If you are age 62 and want to retire and are comfortable with your nest egg, go ahead and retire,” says Minor. “But if you can’t make it unless you get Social Security benefits, the question is do you really have enough to retire on?” A better strategy for singles who want to stop working might be to delve into their 401(k)s so they can accumulate more of a Social Security benefit—it might prove invaluable if they outlive their savings.
If you’re married
This is one of the few situations where experts say it’s normally a good strategy to claim benefits at 62. If the woman is the lower wage-earner, she should begin collecting her benefits early but her husband should wait as long as possible to get his, so he can maximize his payment, and vice-versa. This would allow the couple to collect benefits for a longer time span and allow her to get a higher spousal benefit. Women generally live longer than men, so she could get a higher survivors benefit, too. An alternative plan is for two spouses of similar ages and incomes to each claim spousal benefits, letting their own benefits increase as much as possible before switching over.
If you’re divorced or widowed
If you were married at least 10 years and haven’t remarried, you can still collect spousal benefits based on your ex’s wages—even if he hasn’t claimed his own benefits yet! There’s no negative effect on his benefit or his current spouse's if he has remarried. You can let your own benefits grow while you collect your spousal benefit or do it the opposite way, whatever works out best. Divorcees are also eligible for survivors benefits from a deceased ex-spouse.
Widows can start collecting benefits as early as age 60, though their benefits are still reduced until their FRA. Even if they remarry after age 60, they are still eligible for survivors benefits, too.
Whatever age you decide to start taking benefits, remember that you don’t have to keep working until that point. You can use funds from a pension (if you have one), your 401(k) or other savings to keep you going until you start collecting. And if you do decide to collect after your FRA, make sure you still contact the Social Security Administration about applying for Medicare a few months before you turn 65—delaying this could mean higher premiums down the line.
Of course, the other unknown in all this is the future of Social Security itself. The government may raise the retirement age or change cost-of-living adjustment or taxation policies so that the program can keep paying out benefits. So if you’re retiring 30 or 40 years from now, be prepared for changes.
“The safest thing to do is to assume Social Security is not going to be there,” says Losey. “If you make that assumption, you’re going to put yourself in the best shape because you’re going to be more conscientious with what you save and what you spend. You’ll already have enough to be comfortable, and if Social Security is there when you retire, it’s going to be gravy for you.”