The Best Age to Collect Social Security Benefits: Waiting isn’t always better
Whether you are already retired or whether you are considering retirement in the near future. One of the most important questions you will be faced with is:
When to begin collecting Social Security?
The earliest that someone can collect is at 62 and the latest is age 70. Let’s look at some of the options and see if collecting social security early is beneficial. If you were born between 1943 and 1954, your full retirement age is 66.
If you decide to receive benefits early at age 62, you will only get 75% of your benefits since you began collecting early. If you decide to collect at 65, you will get 93.3% of your benefits.
According to the Social Security website:
If you were born after 1960, here is how your benefits are affected at certain ages.
At age 62, the benefit is reduced to 70/%.
Age 63, the benefit is reduced to 75%
Age 64, the benefit is reduced to 80%
Age 65, the benefit is reduced to 86.7%
Age 66, the benefit is reduced to 93.3%
Age 67, the benefit is a 100%
This is information is critical when it comes to deciding when to decide since this will be a large portion or all income for many people. One of the key questions is that of “life expectancy”.
Now clearly, no one can answer that question, even looking at genetics and family history is not an accurate prediction of YOUR future. But in an effort to look at something statistical, below is that data on life expectancy according to the Social Security website.
A man who reaches age 65 today can expect to live, on average, until 84.3. A woman who reaches age 65 today can expect to live, on average, until 86.7. About 1 in 4, will live past 90 and 1 in 10 of those will live past 95.
Now there are some advantages to taking your benefit at full retirement age or later and that is that you may be eligible for delayed retirement credits that would increase your monthly benefit.
Now let’s look at how much you might be receiving from social security.
The maximum monthly Social Security benefit in 2019 is $2,861. This would go towards those who paid in the maximum amount to social security for 35 years. As this is a very small percentage, most will not receive this amount. Instead, The average social security benefit for “all retired workers” in 2019 is projected at $1,461/month.
How is calculated?
Benefits are calculated by combining your 35 highest paid years. One thing to remember is that when SS calculates this, all wages are indexed to account to inflation which means that wages from previous years are multiplied by an inflation factor based on which years the salary was earned and the year in which the claimant reaches age 60, to give an amount comparable in buying power based on the current value of the dollar. The reason this is done is due to lower earning vs buying the power of earlier years. Wages in 1980 are not as impressive as they are today.
Once all wages have been indexed, the AIME (Average Indexed Monthly Earning) is computed by dividing the sum of all wages by 420 (35 years X 12 months/year). Remember that months that you didn’t work are entered at a 0. Now that we have seen how SS is calculated and the benefit of early withdraw vs delaying benefits. Let’s look at some examples based on amounts.
These are all based on someone born after 1960, with a full retirement age of 67. Death at 85.
- Social Security benefit of $1000/month if you retired at 67.
- Collecting SS benefit early at 62 is $700/month since you only collect 70%.
- If you live until 85 that is 25 years or 276 months.
- Total SS benefit collected is $193,200.
- Collecting SS benefit at age 67 is $1000/month.
- If you live until 85 that is 20 years or 240 months.
- Total SS benefit collected is $240,000.
- Collecting SS benefit at age 70 is $1080/month.
- If you live until 85 that is 15 years or 180 months.
- Total SS benefit collected is $194,400.
As you can see, if you live until the average age, your benefits are higher if you wait until full retirement age to begin collecting benefits but waiting until 70 actually generates LESS MONEY.
Now let’s look at the same example, but for someone who only lives until 77.
- Social Security benefit of $1000/month if you retired at 67.
- Collecting SS benefit early at 62 is $700/month since you only collect 70%.
- If you live until 77 that is 15 years or 180 months.
- Total SS benefit collected is $126,000.
- Collecting SS benefit at age 67 is $1000/month.
- If you live until 77 that is 10 years or 120 months.
- Total SS benefit collected is $120,000.
- Collecting SS benefit at age 70 is $1080/month.
- If you live until 77 that is 7 years or 84 months.
- Total SS benefit collected is $90,720.
As you can see, if you do not live until the average your SS total benefit results in a higher amount collecting at 62 than if you wait until full retirement age or later.
Life expectancy is the largest factor in whether or not to take SS benefits early or not an obviously no one can predict how long they will live, so the choice is yours as to whether or not to pull the trigger on early withdraw.
Some other factors to consider other than life expectancy is spouse benefits. If your SS benefit is larger than your spouse, remember that he/she will receive up to 50% of your Social Security benefit. This can be a deciding factor if your spouse has a small benefit of their own and you want to ensure that they are taken care of financially if you are not around.
Another factor to consider is a return of investment for a few years.
Most retirees invest their retirement funds is a more stable and safe account. This is to protect them from market fluctuations and from bear markets. While this is a safe idea, the concern with this is that you will usually only earn from 1–3% on these funds. Waiting till 70 however, will increase your retirement benefit by about 8% each year. From 67 -70 that can be a return of 24% or 8% each year. In market terms, a Return on Investment of 8% is a great return and significantly higher than if you received a 2% return from a CD or money market.
Each individual situation is unique and you should take into account your own situation. If you have other income during retirement and do not need the income provided by Social Security for a few years, then it might be beneficial to wait a little longer to begin collecting.
If your income is limited and you will need that income then early withdraw might be the answer for you.
Also, remember that Social Security usually but not always gives an increase due to inflation. This is not a guarantee so you should not count on this to increase your benefit amount.
Ultimately the call is yours, so as you approach that magic age, you will want to ensure that you weigh the advantages and disadvantages of your decision.
