Retire early and active, or delay to protect your later years? It's not an easy decision.
Social Security will supply a significant fraction of retirement income for the majority of Americans. The program is actually pretty flexible, allowing people to start getting retirement benefits as early as age 62, though at a reduced level. For millions of Americans, the cut in pay is well worth it, if it allows you to retire younger, when you're more physically fit and able to get more enjoyment from your retirement years.
So just how much will your benefit get cut if you retire early? Here's a closer look at how much you can expect, as well as how much more you'll get if you put off retirement a few years.
Your benefit depends on your full retirement age
Before you can figure out how much your benefit would be cut, you need to know when you reach full retirement age: the age at which you qualify for what the program designates as 100% of your Social Security benefit. Because the government has set that age to rise over time, your full retirement age depends on what year you were born:
| Year of Birth * | Full Retirement Age |
|---|---|
| 1937 or earlier | 65 |
| 1938 | 65 and 2 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943--1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 |
| *If you were born on Jan. 1 of any year, you should refer to the previous year. (If you were born on the first of the month, the SSI figures your benefit (and your full retirement age) as if your birthday was in the previous month.) |
Source: Social Security Administration.
As you can see, full retirement age for people born from 1943 through 1954 is 66. So if you're turning 66 before 2021, that's when you'd be eligible for 100% of your Social Security retirement benefit.
Here's how claiming early cuts your check
The earliest you can claim your Social Security retirement benefit is age 62. And since 66 -- or very close to it -- is the full retirement age for the majority of people retiring over the next decade, we'll use a full retirement age of 66 as the baseline for comparisons for the rest of this article.
Here's a quick look at what you'd get if you claim early:
| Age | Retirement benefit | Spousal benefit |
| 62 | 75% | 35% |
| 63 | 80% | 37.5% |
| 64 | 86.7% | 41.7% |
| 65 | 93.3% | 45.8% |
Source: Social Security Administration.
As you can see, the spousal benefit is also reduced by claiming early, with the maximum amount a spouse can claim on your work record being capped at 50% of your benefit at full retirement age.
Get a bigger check if you wait
Just as filing early cuts your benefit, every year you wait beyond full retirement age will boost your check. Here's how much it goes up each year beyond full retirement age:
| Age | Percentage of benefit |
| 67 | 108% |
| 68 | 116% |
| 69 | 124% |
| 70 | 132% |
Source: Social Security Administration.
The boost is actually calculated based on the number of months past full retirement age you delay, with each month you wait worth a 0.67% increase in your monthly benefit. And while it will increase your direct monthly benefit, it won't increase your spousal benefit, which is capped at 50% of your benefit at your FRA.
Early, late, or on time?
There are several things you should consider before deciding when to take Social Security, including the state of your finances, health, and lifestyle.
Consider this: The system is structured to pay, on average, about the same total amount to you whether you start taking benefits at 62, 66, or 70 -- assuming you live about as long as the average American. But if you live beyond that, having a larger monthly benefit can really pay off. This is because the older your get, the more likely you are to need assisted-living care, which is both expensive and often not paid for by Medicare or health insurance. Unfortunately, by the time they reach that age, many retirees have also significantly depleted their assets.
By delaying the day you start taking your benefit, you'll get a bigger monthly payment, and by working longer, you postpone the time when you will use up your other assets. Both of those factors could be a big deal when you're in your 80s and no longer able to care for yourself, nor to generate as much income to pay for care.
Bottom line: Everyone will face this decision, and have to strike the right balance between making sure they have as much income later in life as possible, and having the resources for an active retirement while they are still young enough to do enjoy it. If you've got the assets to retire early while still being ready for old age, take your benefit as early as you can. But if you haven't built up a nest egg large enough to supplement your income today and for years to come, you may have no choice but to delay.
