You can make your Social Security benefits 24% greater or 30% smaller — so make the move that’s best for you.
Social Security might seem like a boring topic to you, but it’s worth learning a little about it now and then because it’s likely to provide a big chunk of your income in retirement. Indeed, it provides about 30% of elderly Americans’ income!
A key thing to understand about Social Security, for starters, is that how much you receive from it can depend to a great degree on when you start collecting your benefits. Let’s take a closer look at how that works.
Your full retirement age
Let’s start with an important Social Security-related table that’s not the most important Social Security table you’ll ever see. It helps you zero in on full retirement age, which is a very important number in the Social Security world. It’s the age at which you qualify to start receiving the full benefits to which you’re entitled, based on your earnings history. And it all comes down to when you were born:
IMAGE SOURCE: THE MOTLEY FOOL.
Most workers today have a full retirement age of 67. But that doesn’t mean they have to start drawing their benefits then. Each of us can choose to start the checks flowing as early as age 62 or as late as age 70, with our benefits increasing or decreasing for every year we delay or start early relative to our full retirement age. (There’s no benefit to delaying beyond age 70.)
The most important Social Security table you’ll ever see
It can be easiest to grasp how timing affects your benefits if you check out the table below, which reflects how much of your full benefits you can expect to collect in retirement depending on when you turn on the spigot:
| START COLLECTING AT: | FULL RETIREMENT AGE OF 66 | FULL RETIREMENT AGE OF 67 |
|---|---|---|
| 62 | 75% | 70% |
| 63 | 80% | 75% |
| 64 | 86.7% | 80% |
| 65 | 93.3% | 86.7% |
| 66 | 100% | 93.3% |
| 67 | 108% | 100% |
| 68 | 116% | 108% |
| 69 | 124% | 116% |
| 70 | 132% | 124% |
SOURCE: SOCIAL SECURITY ADMINISTRATION.
The table shows that if your full retirement age is 67 and, for example, you claim your benefits at age 62, then your checks will be 30% smaller than if you’d waited until age 67. Delay until age 70, meanwhile, and they become 24% bigger!
It might seem like a no-brainer move to delay until age 70, but there are good reasons to claim early or late. And know this, too: The system is designed so that for those who live average-length lives, the total benefits will be about the same no matter when they’re claimed.
Remember that while claiming early will get you smaller checks, you’ll receive many more of them. Someone who claims at age 62 and lives to age 85, for example, will get a total of 276 checks, while someone who claims at 70 and lives to 85 will collect only 180 checks.
Why you might claim your Social Security benefits early
Here are some reasons to claim Social Security benefits early:
- You have a decent chance of living a shorter-than-average life due to poor health or short-lived relatives.
- You are retiring early (whether you planned to or not) and simply need all the income you can get as soon as possible.
- You’re retiring soon after the stock market has swooned and you don’t want to have to sell any stocks when they’re down. (Ideally, though, don’t keep any money you’ll need within five — or even 10 — years in stocks to avoid this problem.)
- You want to let your stock investments grow as much as possible, so starting Social Security early will let you tap them less or not at all for a while.
- You have pension income coming to you, and if you can delay starting it, you’ll get much more from it, so starting Social Security early can support you until your pension income starts.
- You’re retiring early and can use the Social Security income to pay for private health insurance until Medicare kicks in at age 65.
Why you might delay claiming your Social Security benefits
Meanwhile, you might want to delay claiming your benefits if:
- You stand a decent chance of living a longer-than-average life, due to good health or long-lived relatives.
- You enjoy working and will keep working until age 70 or beyond.
- You have ample income without Social Security, so you might as well let your benefits grow.
- You’re coordinating Social Security strategies with your spouse, and you’re the higher earner. So delaying in order to maximize your benefit can be a great way to provide for your spouse, as when one of you dies, the other will get to keep collecting the larger benefit.
The decision of when to start receiving Social Security requires a lot of thought, and the answer will be different for different people. So think it through before taking any action. And if you’re still many years from retiring, keep the important table in mind as you come up with your retirement plan.
Remember, too, that simply starting at your full retirement age might be a good compromise that works well for you.
