If you were born in 1960 or later, you reach your full retirement age for Social Security at 67. Reaching your full retirement age means that if you start collecting then, you get exactly the amount Social Security calculates as your benefit based on your earnings history. It also means that you can keep working while collecting your Social Security, without getting penalized for it.
Those make some pretty compelling reasons to start taking Social Security at 67, but those reasons alone don't automatically mean it makes sense for you to start at exactly 67. In fact, here are three downright awful reasons for considering starting your Social Security at 67.
Awful reason No. 1: You really need the money to make ends meet
While 67 might be your full retirement age, you can start collecting benefits as early as age 62. If you find yourself retired before age 67 without enough savings, investments, or pension income to adequately cover a basic lifestyle for yourself, go ahead and collect sooner than 67. It makes no sense to struggle to cover basic necessities for several years, just to get a somewhat higher benefit check at your "official" full retirement age.
Taking your Social Security early will reduce your monthly check, but you'll be receiving checks for longer. When all is said and done, your lifetime benefit is expected to be about the same, actuarially speaking, no matter when you start between age 62 and 70. In addition, if you start taking your Social Security check early and later find a job that lets you make ends meet, all is not lost.
If you find that job within a year of starting to collect, you have a "do over" option that lets you pay back the benefits you've collected and then restart collecting later. If it has been more than a year or you can't come up with the cash to pay back Social Security, you will likely face a penalty for working while collecting benefits under your full retirement age. Still, that penalty isn't permanently lost, Social Security will begin paying it back to you once you reach your full retirement age .
Awful reason No. 2: You're not confident in your ability to invest
If you're still working at your full retirement age, you might be tempted to start collecting Social Security anyway, to help boost your savings for the day you do eventually retire. If you plan to aggressively invest that money by topping off your stock investments in your 401(k) and/or IRA thanks to your eligibility for "catch-up" contributions, it might make sense to do so. If you plan to put that cash in your savings account, on the other hand, you might want to think again.
There are two drivers behind why taking your Social Security at 67 just to stick the money in a savings account is an awful idea. First, every year you delay past 67 until age 70 adds 8% to your monthly benefit check, and that's a better return than you'll get in a savings account at today's low interest rates.
Second, depending on your other sources of income, up to 85% of your Social Security benefit can be subject to income taxes. If you continue to delay up until age 70, you don't pay taxes on the benefits you're not receiving while you're younger.
If you start collecting at age 67 while you're still working, you should have a solid investment plan for that money. Otherwise, waiting a little bit longer to start collecting might very well be a better option, thanks to the higher benefit you'll get and the fact that you're not taxed on your Social Security benefits until you actually start receiving them.
Awful reason No. 3: Just because you can
The average retiree receives a monthly $1,348.49 check from Social Security. That's a significant chunk of change, and it's tempting to want to see that cash flowing into your bank account every month. Once you reach 67, there's no penalty keeping you from taking the money even if you're still working, and if you take it, it might feel like the biggest raise you've seen in a long time.
Despite that temptation, you should avoid taking your Social Security at age 67 just because you can. Instead, have a plan for what you'll do with that money, and weigh the benefits of getting your hands on the money then with the benefits of getting a larger check for the rest of your life if you wait just a little bit longer.
If after deciding on a plan and weighing your options, it still makes sense for you to take it, then go ahead and do so -- you've earned it after a long career of contributing to Social Security. If nothing else, by making it an informed decision, you'll help minimize any regrets later in life from wondering how much more comfortable the later years of your retirement could have been with a larger benefit.
It's your benefit -- take it when it makes the most sense for you
The decision of when to take your Social Security benefit may be one of the largest financial choices you face in retirement. Still, it doesn't have to be an overly stressful one. Just remember that actuarially speaking, unless you have a unique lifestyle or medical condition, your lifetime benefit is likely to be about the same no matter when you start taking benefits . With that in mind, you can best fit your Social Security benefit into the rest of your retirement plan, and rest assured that whatever decision you make, it's likely to be the right one for you.
Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.