"[Social Security] proposes, by means of old-age pensions, to help those who have reached the age of retirement to give up their jobs and thus give to the younger generation greater opportunities for work and to give to all, old and young alike, a feeling of security as they look toward old age."
-- Franklin D. Roosevelt
It's typically up to each of us to decide when to give up our jobs and commence retirement -- though sometimes job losses or health setbacks make that decision for us. Part of commencing retirement often involves claiming Social Security benefits, but the question of when it's best to take Social Security remains a topic of debate.
If you're wondering whether you should wait to take Social Security or if you should start collecting it sooner, here are some considerations.
When you start makes a big difference -- seemingly
The age at which you begin collecting your checks, along with some other factors, determines how big they are. Each of us has a "full" retirement age, assigned by the Social Security Administration (SSA):
- For those born in 1960 or later, it's 67.
- For those born in 1937 or earlier, it's 65.
- For those born between 1937 and 1960, it's somewhere in between. (The SSA offers a handy chart with more detail: For example, if you were born in 1958, your full retirement age is 66 years and 8 months.)
If you start collecting at your full retirement age, you'll receive your full Social Security benefits. But you can start collecting benefits as early as age 62 and as late as age 70, with your benefits shrinking or growing accordingly. For every year after your full retirement age that you delay starting to collect, your ultimate monthly check will grow by about 8%, giving you the opportunity to increase your ultimate checks by about 24% between age 67 and 70. On the other hand, if you start collecting at age 62, you can expect your checks to be about 30% smaller.
Those certainly seem like very big differences and they can make you assume that it's smartest to delay collecting until age 70. But the differences are actually not so great. Remember, for example, that if you delay from age 62 to age 70, you will miss out on collecting five years' worth of benefit payments -- 60 payments, in all. Your ultimate checks will be bigger, but you'll be receiving far fewer of them.
On top of that, the Social Security Administration has explained, "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." So for most of us, it's close to a wash.
Other ways to change the size of your benefit checks
Clearly, then, it's not so wrong to start collecting your benefits at your full retirement age or even at age 62, even if it means smaller checks. (In fact, most Americans start collecting at age 62.) There are other ways to influence how much you receive from Social Security, though.
For instance, you might make the most of the formula used to calculate your benefits. It's based on the income you earn in your 35 highest-earning working years -- adjusted for inflation. Understand that if you retire after working for just 30 years, the formula will be plugging in five zeros for five years. That's not ideal. If possible, it's best to have 35 years of earnings. Remember, too, that the greater those earnings are, the fatter your Social Security checks will be. So it can be worthwhile to boost your earnings, perhaps via a temporary part-time job, or by seeking raises more aggressively, or even by changing jobs. Another strategy, if you have 35 years but some of them feature paltry earnings, is to work an extra year or two at a good income in order to replace some weak years.
Meanwhile, there are some other claiming strategies you might look into. Married couples, for example, have a bunch of options they might employ that can increase their total benefits. A spouse who never worked much, for example, may be able to collect spousal benefits worth 50% of the higher-earning spouse's benefits. If the two spouses have very different earnings records, they might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early, while delaying starting to collect the benefits of the higher-earning spouse. That way, the couple does get some income earlier, and when the higher earner hits 70, they can collect extra-large checks. Also, should that higher-earning spouse die first, the spouse with the smaller earnings history can collect those bigger benefit checks.
So -- should you wait to take Social Security?
Given all the information above, when is the best time for you to take Social Security? Well, it can be helpful to start answering that question by getting a sense of how much you can expect to receive at different ages. You can do so via the Social Security Administration's online Retirement Estimator tool and you can get an even clearer idea of your expected benefits by setting up a my Social Security account with the SSA.
For context, know that the average monthly retirement benefit was recently $1,364, which amounts to $16,368 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,687. (That's about $32,000 for the whole year.)
If your family tree is full of people who lived shorter-than-average lives, claiming your benefits early can be very smart. You might as well enjoy the money while you're still around -- and if you beat the odds and live a long life, you'll still be collecting benefits. Few of us have a good idea of just how long we'll live, though, and that's another argument for claiming and retiring early, to give yourself the best chance of being able to enjoy a lot of years without work. Early retirees are often in a better position to enjoy their money more, being younger, healthier, and more able to travel, enjoy recreation, and so on.
If you don't need the money early and you expect to live a significantly longer-than-average life, then you may do best by delaying starting to collect.
Give the matter careful thought, because when you decide to start taking Social Security can make a meaningful difference in your life -- financially and otherwise.