You contributed to Social Security your whole working life, so you deserve to get the most out of it when it’s your time to receive it. But there are some issues you should consider if you want to maximize your benefits.

First, you can start collecting Social Security payments once you hit the age of 62. However, is it smart to do? If you start receiving payments at age 62 you will not get your full benefit amount. In fact, you will only receive 75 percent of the money you would get if you waited until your full retirement age.

For most people it makes more financial sense to wait at least until the age of 66. That is the age when people born from 1943 to 1954 first qualify to receive full Social Security benefits. That full retirement age increases for people born after 1954, hitting a maximum of age 67 for anyone born after 1960 and later.

Even after reaching full retirement age, waiting to take Social Security each month until reaching age 70 further increases benefits.

You will have to take a long look at your health and your finances to make the right decision about when you should begin collecting Social Security.

Retiring early

It can be tempting to retire early and begin collecting Social Security benefits before you hit the age of 66. The thought goes like this: I have been paying money into Social Security my whole life. Why shouldn’t I start collecting it as soon as possible?

You can start collecting Social Security once you hit the age of 62. However, as mentioned, there is a financial penalty that comes with collecting at such an early age: You will receive less money each month than you would have had you waited until you turned 66.

The Social Security Administration website provides a Social Security benefits calculator that tells you how much your monthly benefits will fall if you begin collecting payments before full retirement age.

As an example, if you are scheduled to receive $1,000 a month in Social Security benefits at full retirement age, you will receive just $750 a month if you start collecting at age 62 instead.

While $250 a month might not seem like a big difference, over a year $250 a month comes out to $3,000 less in benefits. This difference would apply every year for the rest of your life. Using an estimated lifespan of 87, if you retire at age 62 and begin collecting Social Security then, you would lose a total of $27,000 by not waiting until age 66 to collect Social Security.

Here is the math:
Reduced benefits of $750 per month for 12 months for 25 years (ages 62-87) is $225,000.
Full benefits of $1,000 per month for 12 months for 21 years (ages 66-87) is $252,000.
Suddenly, that $250 a month seems like a bigger deal, right?

Even if you do choose to retire early, it is worth considering drawing down savings or other investments if you have them before beginning to draw on Social Security. Every month that you can support yourself without tapping your Social Security benefits, your monthly benefit amount will grow.

The benefits of retiring later

Collecting Social Security before full retirement age comes at a financial cost. The flip side is that waiting to collect until after that age comes with a monetary benefit.

You will receive more money each month and every year you put off collecting Social Security, up until you hit the age of 70.

If you are scheduled to receive $1,000 a month at the age of 66, you will receive $1,320 a month if you wait until age 70 to receive your Social Security payments.
That is a difference of $320 a month or $3,840 a year.

Here is the math:
Full benefits of $1,000 per month for 12 months for 21 years (ages 66-87) is $252,000.
Maximum-age benefits of $1,320 per month for 12 months for 17 years (ages 70-87) is $269,280.
With the hypothetical benefit amount of $1,000 monthly, the difference is an additional $17,280 from full retirement age or an additional $44,280 compared to taking reduce benefits at age 62.

The benefit reduction and increase amounts are all based on percentages. The more you have paid into Social Security, the larger your Social Security benefits will be, and the larger these timing-based differences will be in total dollars.

These numbers alone make drawing on Social Security later sound like the smartest choice. However, every situation is different.

Factors to consider

Your health is one critical factor in this equation.

If you expect to live a long life after retirement, then it makes financial sense to begin collecting Social Security payments when you are older.

However, what if you are already suffering from health problems and do not expect to live much past 70? If so, it might make financial sense to start collecting your Social Security payments as early as possible.

The problem with this is we cannot predict how long we will live with any certainty. We can only make predictions based on our present conditions. Health can change rapidly, for both better or worse.

Age 78 is considered the break-even point when it comes to Social Security benefits. If you live past that age, waiting until full retirement age to collect payments will pay off. If you do not make it that far you would have been better off collecting your payments earlier.

What is a realistic lifespan? According to the Social Security Administration, men who turn 65 in 2022 can expect to live for another 20 years, putting them at age 85. Women who turn 65 in 2022 can expect to live another 22 years. In both cases, average people would have lived past the break-even point of age 78.

The Social Security Administration recommends looking at your family history. Did your parents, grandparents, and other relatives live into their 80s?

If they did, and if you are not suffering from any significant medical problems, you might expect to hit your 80s, too. If so, waiting to collect Social Security payments might be the right move.

There are other factors that could influence your decision. Health insurance and its cost are a major consideration. For the most part, you won’t be covered by Medicare until you hit 65, even if you begin collecting Social Security at age 62. The cost of private insurance until you reach 65 might undermine your financial ability to retire early.

Are you struggling with credit card and other types of debt? You do not want to enter your retirement years saddled with large amounts of debt. If waiting to collect Social Security will cause you to add to your consumer debt, taking out benefits sooner might make more financial sense.

Alternatively, it may be best to have the goal of working until debts are paid off, rather than having your retirement goal tied to a specific age. Certainly, you should have a plan for managing any debt prior to retirement.

It is also worth noting that any additional years that you work are likely to increase the amount of your Social Security benefits based on the increased amount that you would have contributed to Social Security during your working years.

Bottom Line

As you can see, it is not easy deciding when to begin collecting your Social Security benefits. Your best bet is to get advice from a certified financial planner who can look at your finances holistically and help you make the right decision for yourself and your spouse.

That is not a choice to rush into; you will be living with the consequences of your decision throughout the entirety of your retirement years.

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