One of the most important retirement planning decisions you will make is when to start your benefits.
Social Security is a sizeable source of income for a majority of America’s elderly population. 90% of individuals aged 65 and over receive Social Security benefits, which represent 38% of their income. Here are some important factors to bear in mind:
- You can start your Social Security benefits between the ages of 62 and 70
- The monthly amount of your benefit will vary depending on when you begin taking payments
- If you decide to start taking benefits at 62, your benefit amount will be reduced by 25-30%, depending on when you were born
- The longer you wait to begin taking benefits, the larger each payment will be
As with all retirement planning, it is important to consider (as best you can) how long you are going to live. If you anticipate living into your 90s, the extra eight years of waiting will pay off when you receive larger monthly payments over the course of two decades.
Start Planning With The Social Security Calculator
Let’s use a fictional friend, Ann, as an example. She is planning her retirement. Ann would receive $1,100 in monthly benefits if she starts taking them at age 62.
However, if Ann waits until she is 67 (or the full retirement age), she would receive $1,791 per month. If Ann waits until she turns 70, she would receive $2,369 per month—that’s more than double the monthly amount she would receive if she started taking her benefits at 62. The difference is dramatic.
To see how different start dates affect you, simply follow these three steps:
- Begin by checking out out this calculator from the Social Security Administration. It generates three different benefits estimates for three different retirement ages. Your benefit amounts will also vary depending on your earnings history, which includes how long you worked, how much you earned every year, whether you left the workforce, etc.
- The next step is to associate these varying estimates with other factors that will affect you financially in retirement. First, what are your expected costs? How much will you need a month to maintain your standard of living? This calculation should include your current cost of living, as well as anticipated increases or decreases in those costs (like downsizing homes), healthcare, relocation, travel plans, and more.
- Finally, consider other sources of earnings. Ideally, Social Security benefits will not be your only source of retirement income. How much you have in retirement savings, whether you have pension benefits or company retirement health benefits, and if you plan to work will all impact how much you need from Social Security every month, and thus when you should start taking those benefits.
Ultimately, deciding when to start your Social Security benefits is a highly personal decision. There is no right or wrong time, and each person’s circumstances are unique. For some, it may be better to start receiving smaller monthly payments earlier, while for others it is better to receive larger monthly payments that may not last as long. Just remember that one in three 65 year olds today will live to age 90, and Social Security benefits are valuable protection against outliving your savings.