Determining when you claim Social Security benefits will affect your quality of life in retirement. Many people have a tough time deciding between taking early retirement or waiting until age 70 to maximize their benefit payments. Working with a financial advisor can help you evaluate your options and choose the best strategy for your situation.
How Retirement Age Impacts Social Security Benefits
Full retirement age (FRA) determines how much you’ll receive from Social Security. Your FRA depends on your birth year, usually between ages 66 and 67. If you claim benefits at your FRA, you get your full monthly benefit amount.
Claiming benefits before your FRA reduces your monthly payments. If you wait beyond your FRA, Social Security benefit could increase by 8% each year until age 70. So, if you can delay claiming your retirement credits, it might be an efficient strategy to raise your monthly income.
Here’s an example claiming Social Security benefits at ages 62, 67 and 70:
- Claiming early at age 62: If your full retirement age (FRA) is 67, claiming at age 62 means you’ll take benefits five years early. Social Security reduces your benefit roughly 6% per year, totaling about 30% reduction for claiming five years early. Example: $2,000 × 0.70 (100% – 30%) = $1,400 monthly benefit.
- Claiming at FRA (age 67): You receive your full monthly benefit without reductions. Example: Full benefit = $2,000 per month.
- Claiming later (age 70): If you delay beyond FRA, benefits increase by about 8% each year. Waiting 3 years (age 67 to 70) results in a 24% increase. Example: $2,000 × 1.24 (100% + 24%) = $2,480 monthly benefit.
Tips for Choosing When to Start Taking Social Security Benefits
Understanding your finances, health and lifestyle goals can help you choose the right time for your retirement. Here are five general tips to help you decide the best time to start taking your Social Security benefits.
Evaluate Your Full Retirement Age (FRA)
Your FRA is the age at which you can receive your full Social Security benefit amount. This age varies depending on your birth year, typically ranging from 66 to 67. Knowing your FRA can help you decide whether to take benefits early, at your FRA, or delay them for a higher payout.
Consider Your Health and Life Expectancy
If you have health issues or your family history suggests a shorter lifespan, claiming Social Security early could make sense. But, if you expect to live longer, waiting to claim benefits might increase your overall lifetime payments.
Assess Your Financial Needs and Other Income Sources
Review your current financial situation, including savings, pensions, investment portfolios and other income streams. If you have sufficient resources to cover your expenses, you might choose to delay Social Security to increase your future benefits.
Understand the Impact of Working While Receiving Benefits
If you plan to work while receiving Social Security before reaching your FRA, be aware that your benefits may be temporarily reduced. Once you reach your FRA, you can earn any amount without affecting your benefits.
Factor in Spousal and Survivor Benefits
If you’re married, consider how your decision affects your spouse’s benefits. Delaying your benefits can increase the survivor benefits your spouse may receive. Knowing when your spouse can claim your Social Security benefits is important, too.
Bottom Line
Your decision to retire early or wait until age 70 will depend on personal circumstances, including health, financial needs and life expectancy. Considering these factors carefully can help you choose an option that matches your retirement goals. A retirement planning advisor could also work with you to map out your options before making a decision.
Retirement Planning Tips
- A financial advisor can help you create a plan to secure a comfortable retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your nest egg could grow over time, SmartAsset’s retirement calculator could help you get an estimate.
Photo credit: ©iStock.com/Rockaa, ©iStock.com/FluxFactory