Deciding when to take Social Security retirement benefits is important because it can directly affect your benefit amount. While you can technically start taking benefits as early as 62, you’d receive them at a reduced amount. On the other hand, you could delay taking benefits up to age 70 and receive a much larger benefit. Calculating your Social Security break-even age can help you decide when the best time is to begin taking benefits. You can do that using a Social Security break-even calculator. Additionally, you may find it helpful to consult with a financial advisor about these decisions.
Defining the Social Security Break-Even Age
Your Social Security break-even age represents, in theory, the ideal point in time to apply for benefits to maximize them. Remember, you can begin taking your benefits at age 62 to receive a reduced amount. But by taking your benefits at this earlier age, you’ll receive more Social Security checks over your lifetime, assuming you reach your desired or expected life expectancy.
On the other hand, delaying your benefits past the full retirement age increases them year over year until you reach age 70. Currently, the full retirement age for most people is either 66 or 67 based on Social Security Administration guidelines. If you wait until age 70 to claim your benefits, you’ll receive up to 132% of your monthly benefit amount. So the trade-off is receiving fewer checks from Social Security but the ones you do get will be larger.
Your break-even age is the point at which you’d come out ahead by delaying Social Security benefits. Your actual Social Security break-even age can depend on the number of benefits you’re eligible to receive, your tax situation and things like how inflation might affect the purchasing power of your benefits.
Full Retirement Age: Figuring Out Yours
Your full retirement age is the age at which you can claim the full benefits that you’ve accrued throughout your working years. While you can technically retire and start claiming Social Security payments at age 62, retiring at that point won’t give you access to your full retirement benefits. Your full retirement age is determined based on when you were born, explained in detail below.
For the first several decades of the Social Security program, everyone had the same full retirement age: 65. But Congress introduced amendments in 1983 that would allow the normal retirement age to increase over time. Congressional leaders felt that a gradual adjustment of the full retirement age was necessary to ensure that there was enough money to keep Social Security from facing insolvency.
Do you need help figuring out your required minimum distributions? Try SmartAsset’s RMD calculator to learn more.
The result is that not everyone has the same full retirement age (FRA). The age at which you gain access to full Social Security benefits depends on the year you were born. If you were born between 1943 and 1954, your FRA is 66. If your birth year is 1960 or after, your FRA is 67. Anyone born between 1955 and 1959 has a retirement age between 66 and 67 – that is, 66 plus a certain number of months. For instance, if you were born in 1958, your FRA is 66 and eight months.
The day you were born could also affect your FRA. If you were born on January 1, you’ll need to use the FRA for the folks who were born a year before you. If you were born on the first day of any month, your FRA will be the same as someone born the previous month. For example, if you reach your FRA on March 1, you’ll receive full benefits for February, too. Here’s a complete breakdown of the FRA by birth year.
Full Retirement Age
| Birth Year | Full Retirement Age |
|---|---|
| 1943-1954 | 66 years old |
| 1955 | 66 and two months |
| 1956 | 66 and four months |
| 1957 | 66 and six months |
| 1958 | 66 and eight months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 years old |
How a Social Security Break-Even Point Calculator Works
Figuring out the right time to start taking Social Security benefits isn’t always a straightforward process. A Social Security break-even calculator can help you get some perspective on the numbers so you know what you stand to gain or lose by taking benefits earlier versus later.
Social Security break-even calculators help you find the best age to start taking retirement benefits. They do this by comparing your cumulative Social Security retirement benefits paid at age 62, your FRA and at age 70 and estimating how long it would take the benefits paid at age 70 to break even with benefits paid age 62 or FRA.
Here’s a simple calculation to give you an idea of how a Social Security break-even calculator works. Say that you have the option to begin receiving $1,200 a month in benefits at age 62. You’d receive $1,700 in benefits if you wait until full retirement age at 66. Or you could receive $2,200 a month in benefits by delaying them until age 70.
The break-even point represents when the cumulative benefits even out. So if you wait until age 70 to start taking benefits, it would take you until age 79 to break even with the benefit amount you’d receive if you started taking them at age 62. If you were to start receiving benefits at age 66, it would take you until age 75 to break even with the benefits you’d receive if you started them at 62.
What a Social Security Break-Even Calculator Tells You
In a nutshell, a Social Security break-even calculator can tell you when the best age is to start taking Social Security benefits, in terms of how much money you could expect to receive over time. Going back to the previous example, let’s assume that you track your benefit amounts over a 10-year, 20-year and 30-year period. Here’s how your total benefits received would look over each of those periods, for all three starting points.
Social Security Benefits by Starting Age: 62 vs. 67 vs. 70
For someone who is 50 years old and thinking about future retirement, let’s calculate what their break-even point could be. For this calculation, we will say that they make $100,000 and retire at the age of 60. Here is what their starting benefits would be at retirement:
- $33,461 starting at age 62
- $47,802 starting at age 67
- $59,275, starting at age 70
If this individual were to consider taking their benefits early or late, it would take until the age of 79 and 9 months before the two paths would cross. Living longer than that would point to waiting until the age of 70 to take their benefits. Taking the benefits at age 67 would increase the break-even age to 80 years and 7 months.
What you have to keep in mind when using a Social Security break-even calculator is that the numbers are hypothetical. They don’t take into things that could affect your ability to draw benefits or how far those benefits might go, such as:
- Future cost of living adjustments to Social Security benefits
- Your life expectancy and health status
- How much tax you’ll owe, if anything, on those benefits
- Changes to the inflation rate
These calculators also don’t factor in the number of benefits your surviving spouse might receive if you were to pass away.
Deciding When to Take Social Security Benefits
Typically, the longer you can wait to take your benefits or the closer to 70 you are, the higher your allotment will be. However, that might not be the best solution for you and the result could change if you have 35 years of high income before then. A Social Security break-even calculator can be a good starting point for deciding when to take Social Security benefits.
Beyond that, however, consider the bigger picture and how changes to your health or rising inflation might affect your timing. Also, think about whether you plan to continue working in some capacity while receiving Social Security benefits. That could reduce your benefit amount, make some of your benefits taxable or both.
If you earn income above certain thresholds your Social Security benefits could be reduced and you may owe income tax on them as well. That can shrink how far those benefits go in covering your expenses if you’re only semi-retired.
Also, consider other assets you can draw on for retirement income when trying to time Social Security benefits. If you have a 401(k) or pension at work, an individual retirement account (IRA), an annuity, a taxable brokerage account, savings accounts, certificates of deposit (CDs) or all of the above, those can also affect when you decide to take Social Security.
Bottom Line
A Social Security break-even calculator can be a helpful tool for Social Security planning, but it’s not the only one you can use to figure out when to take benefits. Keeping your estimated cost of living and expenses in mind, as well as your overall health and life expectancy can help you make the best decision about when to take your Social Security benefits. Once you start taking benefits then you can’t change the consequences.
Tips for Retirement Planning
- Consider talking to a financial advisor about when it makes the most sense to take Social Security benefits. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A Social Security calculator can give you a good idea of what you will receive once you retire. Also, keep in mind that an annuity can give you a guaranteed income stream in retirement, which could allow you to delay taking Social Security benefits and therefore maximize your benefit.
Photo credit: ©iStock.com/Zinkevych, ©iStock.com/serdjophoto, ©iStock.com/DNY59