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Claiming Social Security at 65? You May Need to Rethink That

By Ryan Downie – Jan 1, 2022 at 6:00AM

Key Points

  • Monthly Social Security benefits rise if you delay when you start claiming them.
  • It takes years for cumulative income from Social Security to catch up if you delay.
  • The best decision depends on your personal circumstances, cash flow needs, and retirement goals.

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You might collect more Social Security by waiting beyond age 65 -- or starting even eariler.

Many people begin their retirement planning by assuming that they'll retire at age 65. But that's not the best option for everyone.

Even though it shouldn't be, Social Security is the most important source of income for many retirees, and the level of that income can change drastically depending on the age that they start claiming benefits. As retirement planning gets more involved, the assumptions change and potential retirees need to make sure they consider all the options and understand the ramifications of when they retire before setting things in motion.

Delaying benefits has a clear advantage

The amount of your monthly Social Security benefit is based on lifetime earnings, cost of living changes, and the age at which you start receiving benefits. The earlier you turn on the Social Security income stream, the smaller your monthly checks will be. The later you wait to start, the larger the monthly check.

Retired people smiling and playing chess at a table.

Image source: Getty Images.

Full retirement age (FRA) is the Social Security Administration's phrase for the age at which you're eligible to receive 100% of your benefit. That's currently 66 years old for people born prior to 1955, and it phases up to 67 years old for anyone born after 1960.

If you start claiming Social Security at 65, you won't be getting your full payout. Your monthly benefit would be reduced by 13.3%, assuming a full retirement age of 67. The average Social Security benefit is expected to be $1,657 in 2022. A 13.3% reduction might seem modest, but that means someone receiving the average benefits would get $220 less each month.

A retired couple entering the program at age 67 who each receive the average amount would accumulate an annual household income of $39,768 just from the program. The two-year head start on benefits collection would drop that annual income to $34,478. That's a meaningful difference in cash flow, and it only gets bigger if you're one of the recipients who qualify to claim the maximum $3,895 each month at age 67.

Delaying beyond full retirement age allows retirees to collect more than 100% of their benefit. Your monthly benefit increases 8% for every year that you delay collection. There's no bonus for delaying past age 70, but that's still a 24% higher benefit for people claiming benefits at the full retirement age of 67.

Of course, every situation is different. You can check your own statements with the Social Security Administration to personalize your numbers and find the time that works best for you to start claiming Social Security.

You might want to collect earlier

The advantages of delaying collection to full retirement age (and beyond) are pretty clear, but an argument can also be made for claiming Social Security even earlier. It really depends on your personal circumstances and what you're trying to accomplish.

The first consideration is really a math problem. If you wait until age 70, you'll get more each month. However, you will receive those payments over the course of fewer months, so it takes a while for the payouts to even out.

For example, Mr. Smith works enough to qualify for the average $1,657 a month at age 67. If we ignore cost of living adjustments over time, Mr. Smith would accumulate a roughly $70,000 head start in overall benefits by starting to receive them at age 62 rather than waiting until full retirement age. If Mr. Jones qualifies for the average $1,657 a month and begins payments at age 67, how much each receives in overall benefits wouldn't even out (aka the break-even age) until age 78 and eight months. But if both live longer than that age, Mr. Jones would start accumulating more overall with each passing month.

What this suggests is that if you think you will likely live to be at least 79 years or more, it would behoove you to delay starting benefits as you will come out ahead overall. If your health, your lifestyle, or your genetic history suggest you probably won't live to that age, taking Social Security sooner might be the better option. It's tough to know for sure either way, but some people can make a pretty educated guess.

It's also important to consider your needs, desired lifestyle, and financial resources outside of Social Security. The earliest years of retirement are often the most active (and most expensive). Every day is suddenly Saturday, and your mid-60s might be the best time of your whole life to travel, eat out, and otherwise actively enjoy countless hours of leisure. Social Security could provide the supplementary cash flow necessary to enjoy your golden years comfortably.

It's also important to make sure that you distribute the right amount from your retirement accounts, especially early on. Today's economic environment has forced financial planners to revise the 4% rule downward. Dipping into your retirement savings too much, too early can blow up the plan. There's a real risk that you'll outlive your money if your 401(k) or IRA is depleted too quickly. That's doubly true if there's a market correction that eats into your savings accounts. Getting a head start on Social Security benefits could help preserve your savings to keep your retirement plan intact.

Everyone is different

The best course of action really depends on personal circumstances and goals. There are pros and cons to any decision that you make about Social Security, and it's impossible to know what the future holds. To ensure the best way forward, it's important to know the numbers you're dealing with and make an informed decision.

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