"My favorite things in life don't cost any money. It's really clear that the most precious resource we all have is time."
-- Steve Jobs
Steve Jobs was quite right that money can't buy you everything -- including some of life's most important things. But money is still rather important, and if your favorite things include a roof over your head and food in the pantry, then you will need money -- now and in retirement.
Image source: Getty Images.
Social Security is a critical income source for most retired Americans, and how much you will receive from it each month depends in large part on when you start collecting -- at your "full" retirement age, before it, or after.
Timing matters
The full retirement age for Social Security used to be 65 for everyone, but it has been increased for many of us. For those born in 1937 or earlier, it remains 65, for those born in 1960 or later, it's 67, and for those born between 1937 and 1960, it's somewhere in between.
No matter whether your full retirement age is 65, 66, or 67, you can claim and start collecting your benefits as early as age 62 and as late as age 70. For every year beyond your full retirement age that you delay starting to receive benefits, you'll increase their value by about 8% -- until age 70. So delaying from age 67 to 70 can leave you with checks about 24% fatter. If your full retirement age is 67 and you start collecting benefits at age 62, they will be 30% smaller.
Here's the kicker, though: The system is designed so that total benefits received are about the same -- a difference of $0 -- no matter when you start collecting, if you have an average life spans. Checks that start arriving at age 62 will be considerably smaller, but you'll receive many more of them. So for most people, it's close to a wash.
The average monthly retirement benefit was recently $1,368. That amounts to $16,416 per year. If your earnings have been above average, you'll collect more than that -- but the overall maximum monthly Social Security benefit for those retiring at their full retirement age in 2017 is still just $2,687 -- or about $32,000 for the whole year.
Image source: Getty Images.
Average benefits by age
You may be wondering, though, just what kind of income beneficiaries receive by age. Below is an answer, in the form of average benefits paid by age as of the end of 2015, from the most recent (2016) Annual Statistical Supplement of the Social Security Administration (SSA):
|
Age |
Average Monthly Benefit |
Annualized Benefit |
|---|---|---|
|
62 |
$1,046 |
$12,552 |
|
63 |
$1,083 |
$12,996 |
|
64 |
$1,115 |
$13,380 |
|
65 |
$1,152 |
$13,824 |
|
66 |
$1,221 |
$14,652 |
|
67 |
$1,259 |
$15,108 |
|
68 |
$1,259 |
$15,108 |
|
69 |
$1,285 |
$15,420 |
|
70 |
$1,268 |
$15,216 |
Data source: Social Security Administration.
It's worth noting that if you were to drill down into the SSA's data, you'd see that women's average benefits are significantly lower, on average. That reflects the fact that women often earn much less than men (often for the same work) and they are much more likely than men to be out of the workforce for some years, caring for children or parents.
Image source: Getty Images.
Bigger and smaller benefits
The table above might not be as useful to you as you would think, though, because the amount that, say, a 65-year-old is collecting now isn't likely to be close to what you'd be collecting when you turn 65. So let's look at some other tables. Here's how much smaller your checks will be if you start collecting them before your full retirement age. (Again, remember that you'll be collecting many more checks if you start early, and for those who live an average-length life, it will be a wash.)
|
Start Collecting at: |
Full Retirement Age of 65 |
Full Retirement Age of 66 |
Full Retirement Age of 67 |
|---|---|---|---|
|
62 |
80% |
75% |
70% |
|
63 |
86.7% |
80% |
75% |
|
64 |
93.3% |
86.7% |
80% |
|
65 |
100% |
93.3% |
86.7% |
|
66 |
100% |
93.3% |
|
|
67 |
100% |
Data source: Social Security Administration.
How much bigger can your checks get? It depends on how long you delay starting to collect benefits. For each year you delay from your full retirement age, your benefits will increase by a certain sum -- depending on your birth year. Check out the table below:
|
Year of Birth |
Annual Increase in Benefits |
|---|---|
|
1933-1934 |
5.5% |
|
1935-1936 |
6% |
|
1937-1938 |
6.5% |
|
1939-1940 |
7% |
|
1941-1942 |
7.5% |
|
1943 or later |
8% |
Data source: Social Security Administration.
Of course, the best way to estimate what you'll receive from Social Security is to get the information from the horse's mouth, by checking with the Social Security Administration. Set up a "my social Security" account and you can get a lot of information on your estimated benefits.
When you start to collect your benefits will have a big influence on how big your checks are, but there are other ways to maximize your Social Security benefits. The more you learn, the better off you may be in retirement.