When Can I Collect my Social Security Benefits?

FT Contributor
An elderly couple speak to a financial advisor about collecting their Social Security benefits.
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Established as part of the New Deal after the Great Depression, Social Security is a federal program designed to provide a source of income for older adults after they retire. Although saving for retirement is a priority for many people today, prior to the Great Depression most people were left without any source of income once they stopped working.

Social Security was created to ensure that people aren’t left without any resources after retirement, with payments determined by how long they work and how much they pay into the system over their careers.

Most people begin collecting Social Security at full retirement age, which is currently between the ages of 65 and 67, depending on your when you were born. However, there are other factors that may influence when payments begin, and many people start collecting benefits earlier or later than the full retirement age.

Early Retirement Age

Waiting until you reach full retirement age as determined by the Social Security Administration ensures that you receive 100% of the benefits you’ve earned. Your full retirement age depends on when you were born.

For instance, anyone born after 1960 doesn’t reach full retirement until age 67. For anyone born between 1943 and 1954, retirement age is 66. If you were born between 1954 and 1960, your retirement age depends on the year you were born and your birthdate. For example, if you were born in 1957, you reach full retirement at age 66 and 6 months. If you were born in 1958, retirement age is 66 and 8 months old.

That said, you can begin collecting Social Security benefits as early as age 62, with a major caveat: when you take Social Security early, your benefit is permanently reduced by 25%. Even when you reach full retirement age, your benefits will remain reduced. Depending on how much you qualify to receive each month, this reduction can be significant, amounting to hundreds of dollars in lost money.

You can also collect your Social Security benefits before retirement if you are widowed.

If your spouse dies, you may collect Social Security benefits beginning at age 60. Known as survivor’s benefits, these Social Security payments will be reduced if you are still working and make more than the earnings limit, but once you reach full retirement age, you’ll receive the full benefit without any reductions.

Delayed Retirement Age

If you don’t plan to retire early, or have enough savings to cover your expenses, delaying your Social Security payments could be a smart financial move. The latest you can begin collecting Social Security is age 70. By waiting, though, you can actually increase your benefits by 8% for each year past your full retirement age. In other words, if your full retirement age is 66, and you wait until you are 70 to collect, you will actually receive a Social Security bonus, which translates to 132% of the benefit you’re entitled to receive.

Many people see this benefit increase as an incentive to delay applying for Social Security. If you plan to keep working, or have enough money coming in to support yourself when you stop working, the bigger Social Security checks can help you stay financially secure.

When Should I Take My Social Security Benefits?

Deciding when to start collecting your Social Security benefits is one of the most important decisions you’ll make for retirement.

Sometimes, the decision is easy: if you are 62, and you need the money to cover your expenses, then applying for Social Security is an obvious solution. However, not all situations are so cut-and-dried. Before applying, consider some of the other variables, such as:

  1. Your life expectancy: Obviously, you can’t predict how long you will live, but you can make an educated guess as to your longevity based on your overall health and how long people in your family typically live. If you think you still have a few decades ahead of you, waiting to collect Social Security can help you come out ahead in the long term. If your life expectancy is lower, then taking benefits earlier is a better choice.You can make this calculation easier with a break-even analysis. Add your monthly benefits if you begin collecting at 62 and compare them to the total if you wait until later to determine the age where the benefits will be roughly the same. If you expect that you’ll live past that age, then waiting will ultimately pay off.

2. How much you have saved: If you’ve been consistently contributing to your retirement savings throughout your career, you should have a healthy nest egg to carry you through retirement. If you do, this may allow you to delay accepting benefits.

3. How much you’ve contributed to Social Security: Your monthly benefit is determined by the credits you earn from working. The longer you work and the more you earn, the more credits you receive, and the higher your benefit. If you have had periods when you didn’t work, or earned less, waiting to collect benefits so you receive the bonus will give you a bigger monthly check.

4. Tax implications: If you collect Social Security benefits before you stop working, you could be liable for taxes on them. Regardless of how much you earn, the first 15% of Social Security benefits are not taxed, but if 50% of your Social Security benefits plus your adjusted gross income for the year equals between $32,000 and $44,000, you’ll have to pay taxes on half of your benefits.

If you exceed $44,000, you’ll pay a tax on 85% of the benefit. The IRS takes other factors into account, so your tax bill will likely be low, but it’s still something to consider when deciding when to take benefits.

5. Spousal benefits: In addition to the special considerations for widows, spouses who did not work or who do not have enough credits to qualify for Social Security can begin collecting benefits at age 62 based on their spouse’s record. However, the most they can collect is half of their spouse’s benefit. Typically, it’s better to wait until the working spouse reaches full retirement age before taking benefits.

6. Investment opportunity: Savvy investors may be able to invest the Social Security benefits they claim early to earn a greater return on their money. However, because investments are not guaranteed, and additional earnings can create new tax liabilities, this strategy is typically not recommended to the average investor.

7. Health insurance: Collecting Social Security benefits also means enrolling in Medicare Part A, which makes you ineligible to make any more contributions to a Health Savings Account (HSA), which could affect your health coverage.

Ultimately, you don’t have to take Social Security because you are retired. In most cases, the longer you wait, the better off you’ll be. Before deciding, weigh all of the factors, and if you have enough income to get by, wait until you reach full retirement age or age 70 to get the most from your hard-earned benefits.

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