As you near retirement, one of the big questions youâ€™ll have to consider is when to start taking your Social Security payments. Throughout a working lifetime, workers pay money into the Social Security system, and then they collect money back in a stream of income payments that often starts in retirement.
But when to start collecting is a big decision, because the age at which you claim Social Security affects how much youâ€™ll receive for the rest of your life. Consider that the average 55-year-old man today can expect to live to 82 and a half, according to the Social Security Administrationâ€™s life expectancy calculator. And advances in healthcare mean that many people are in good shape well into their advanced years.
â€śIn the old days, as somebody got older, it was like going down the mountain â€” they would get worse and worse as they got older and spent less and less,â€ť said Brett Horowitz, a financial planner in Coral Gables, FL. â€śNow weâ€™re seeing clients who are in their 70s and 80s, feeling fine the entire way up until the last six months [of their life]. Theyâ€™re spending what they were spending before â€” theyâ€™re not seeing the reduction in lifestyle.â€ť
In other words, your money needs to last. Hereâ€™s what to consider.
If you choose to, you can start taking Social Security benefits at age 62 â€” and itâ€™s the most popular age at which to claim benefits, according to a USA Today report.
But claiming retirement benefits at age 62 wonâ€™t maximize your earnings. In fact, for those born in 1960 and later, taking Social Security at this age means youâ€™ll get 30% less each month than you would if you waited for your full retirement age (which is 67 for that age group). That means that if you waited until you were 67, your benefit might be $1,000 a month, but if you file for benefits at age 62, youâ€™ll receive only $700 a month.
What the government defines as â€śfull retirement ageâ€ť has evolved over the years. For those born in 1937 and earlier, full retirement age was 65. For those born in 1960 or after, full retirement age is 67. For those born in between, the magic number falls somewhere on the spectrum between those two ages. (You can look up your full retirement age here.)
When you reach full retirement age, youâ€™re entitled to your full Social Security benefits â€” or the full $1,000 a month in our previous example, say, instead of the $700 youâ€™d get at age 62.
But thatâ€™s not the whole story. If you wait to claim your Social Security benefits until you hit age 70, your benefits will continue to increase by as much as 8% a year. Hereâ€™s an example of how your Social Security may change based on the age at which you start collecting benefits.
This example assumes a monthly benefit of $1,000 at a full retirement age of 67.
As mentioned, 62 is the most popular age at which to start taking Social Security benefits, and itâ€™s not hard to imagine why: You get to collect money sooner. But your monthly benefit is also significantly reduced.
For some people, claiming Social Security at age 62 isnâ€™t so much a choice as a necessity. For instance, if youâ€™ve been laid off from your long-time job in your early 60s, you donâ€™t have much set aside in a 401(k) or IRAs, and youâ€™re not having any luck finding another job, you may have to file at 62.
â€śUnfortunately, there will be people whose circumstances wonâ€™t permit any type of planning with Social Security,â€ť said Peter Palion, a financial planner in East Meadow, NY. â€śThey have to take it; they have no other choice.â€ť
You may also want to file early if you think youâ€™re not going to meet the average life expectancy for your age. â€śLetâ€™s say you find out from your doctor that you have a terminal illness,â€ť PalionÂ said. â€śThereâ€™s no point waiting to eternity [to file] if your doctor says youâ€™re not going to get to eternity.â€ť
Other scenarios are case-by-case. Horowitz pointed to a client in his 50s who stands to inherit a $3 million life insurance payout when his elderly mother dies â€” but he might not see that money for another decade or more. â€śWhen heâ€™s older, heâ€™ll have plenty of resources,â€ť Horowitz said. â€śBut weâ€™ve got to make sure he doesnâ€™t run out between now and then. As soon as he turns 62, weâ€™re going to claim benefits.â€ť
The benefit of filing at full retirement age is that youâ€™ll get your full retirement benefit. If youâ€™ve got a spouse whoâ€™ll be dependent on spousal Social Security benefits, thatâ€™s crucial, because theyâ€™ll get the maximum spousal benefit available. The spousal benefit is capped at half of your benefits at full retirement age, so waiting until 70 wonâ€™t increase what they receive. (And they wonâ€™t receive anything until you file for your own benefits.)
Aside from spousal benefits, however, your retirement age is just another number on the sliding scale between 62 and 70. If you can wait another year or two to file â€” and your spouse isnâ€™t dependent on your benefits â€” youâ€™ll get up to an additional 8% for each year you delay.
Waiting until age 70 to take Social Security has some big monetary advantages. For one, you get an increase in your benefits for each year you wait past your full retirement age. So instead of that $1,000 a month youâ€™d get at 67, you could now receive $1,240 a month at age 70.
This could be important for you, but it may also be important for your spouse if you die before them and your Social Security benefits are worth more than theirs. Depending on your spouseâ€™s age, theyâ€™ll be eligible for either a portion of or 100% of your benefit amount as a widow or widower. If you wait until age 70 to claim, that benefit amount will be higher.
The best candidate for the wait-until-70 approach is someone who is either still working or who has adequate savings in other places such as a 401(k), IRA, or pension that they can live on until they file for Social Security.
Filing for Social Security is a big decision. There are a variety of calculators that can help guide your choice, such as this one from AARP. But a financial planner can also be a good resource on this, as they can take your life circumstances â€” savings, health, family â€” into account and help you make the best choice.