When most people think of retirement planning, they think about how much money they need to save. But saving is only half the battle; determining when to retire is just as important.
Social Security benefits play a major role in deciding your retirement age, though it's important to remember that claiming benefits and actually retiring don't always go hand in hand. You can claim benefits while still working, or retire and wait a few years to claim benefits.
The earliest you can claim Social Security benefits is age 62, but you'll receive a cut in benefits for every month you claim before your full retirement age (FRA), which is between 65 and 67, depending on the year you were born. If you delay claiming benefits past your FRA, you'll receive a bonus on top of your full benefits for every month you wait until age 70, when your benefits reach their maximum.
There are many factors to consider when deciding when to retire and claim Social Security, but whether you claim early or wait a few years, there are arguments for and against:
Age 62: Pros
The most popular age to file for Social Security retirement benefits is 62, with 48% of women and 42% of men choosing to take benefits at this age, according to the Center for Retirement Research at Boston College.
It's easy to understand the appeal of retiring and claiming benefits at 62: Most people, when they have been working the last 40 years or more, are eager to start retirement as early as possible, and those Social Security checks can help them enjoy their golden years even more.
Claiming benefits early can also help if you lose your job or can no longer work due to health reasons. In a Nationwide Retirement Institute survey, 37% of retirees said health issues had prevented them from living the retirement they wanted, and Social Security benefits can help make ends meet. The average Social Security check is around $1,400 per month, which can go a long way if you need a little help paying bills.
Life expectancy is another consideration when deciding whether to retire early. While it's not the most pleasant topic to think about, retiring (and claiming Social Security benefits) early can work out in your favor if you're not planning on spending several decades in retirement. If you claim benefits at age 62, your monthly checks will be smaller, but you'll receive more of them. The longer you wait to claim Social Security, the longer it will take for your increased benefit amount to make up for the checks you missed out on. Therefore taking those benefits early makes sense if you don't expect to live well into your 80s -- or if you simply want to enjoy the extra income while you can.
You also have the option to retire early but wait until age 70 to claim benefits. If your retirement fund is solid and you have enough to live comfortably without Social Security, you can have the best of both worlds: early retirement plus the extra benefits when you wait to claim.
Age 62: Cons
It is possible to claim benefits early while you're still working -- which can give you some extra spending money while you continue to build your nest egg -- but there are restrictions if you haven't reached your FRA and are earning more than the yearly earnings limit. For 2018, that limit is $17,040, and for every $2 you earn above that limit, you'll have $1 deducted from your Social Security benefits if you're under your FRA. Then, during the year you reach your FRA, you'll have $1 deducted from your benefits for every $3 you earn above a different limit -- for 2018, that limit is $45,360. Keep in mind, though, that this money isn't lost forever; you'll be "repaid" later through increased benefits.
Another major disadvantage of claiming early is the cut in benefits. If your FRA is 66, for example, your benefits will be cut by 25% if you claim at age 62. If your full benefit amount (or the amount you'd receive if you wait until your FRA to claim) is $1,400 per month (or $16,800 per year), your benefits could be slashed to $1,050 per month (or $12,600 per year).
If you retire at age 62, you'll also need to provide your own health insurance for a few years, because you won't be eligible for Medicare until age 65. One of the easiest solutions is to stay on a spouse's plan if he or she is still working, but if that's not a possibility, there are other options.
COBRA, for example, will allow you to stay on your employer's healthcare plan, though it's typically much more expensive than what you paid as an employee. It also only lasts 18 months, which is another downside of retiring at 62. You may instead opt for insurance under the Affordable Care Act, though your options will vary based on where you live, and these plans may also be costly.
Age 70: Pros
The biggest advantage of waiting to claim benefits until age 70 is the bonus you'll get. If your FRA is 66 and you wait until 70 to claim Social Security, you'll receive 132% of your monthly benefits. If your full benefit amount is $1,400 per month, then you'll be eligible to receive $1,848 per month at age 70 -- or an extra $5,376 per year.
If you continue working until age 70, you'll also have more time to bulk up your retirement savings -- and the amount you can save in just eight years may surprise you. If, for example, you have $300,000 in your retirement fund at age 62 and you're contributing $100 per month, assuming you're earning a 7% annual rate of return on your investments, you'll have a total of $528,230 saved by the time you turn 70.
Age 70: Cons
Depending on your life expectancy, those extra Social Security benefits may not be worth the wait. Of course, nobody knows exactly how long they'll live, but claiming benefits later tends to benefit those who live longer. For example, if your FRA is 67 and your full benefit amount is $1,400 per month, if you claim benefits at age 70, you'll need to live to at least age 80 to receive the total lifetime benefits you would have received had you claimed Social Security at age 62. The average life expectancies for men and women turning 65 today are 84 and 86, respectively, but it's important to take a serious look at your health and family history to decide whether it's worth it to delay benefits.
The other potential downside to delaying retirement is having less time to be free and fully independent. Whether you want to travel, spend time with the grandkids, or pick up a new hobby, it's often easier to do so when you're younger -- especially if you start to develop health issues as you age. According to the Nationwide Retirement Institute survey, 80% of recent retirees said their health problems occurred earlier than they had anticipated.
You may not have a say in when you retire, but if you do, choosing the right age to retire can dramatically improve your quality of life.
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