You probably know that if you want to maximize your Social Security checks, you should wait until age 70. And if you want more Social Security checks (albeit smaller ones), you should claim at 62. But deciding when to claim Social Security is a lot more complicated than that.
Your health, your willingness and ability to work when many of your peers are retiring, and your overall financial situation are all crucial factors to consider. For many people, the best choice will lie somewhere in between the two extremes of 62 and 70. Keep reading to learn why 65 may be the perfect age at which to collect Social Security.
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The best reason to claim Social Security at 65
When Social Security was first established in 1935, the full retirement age -- the age when you can receive your full retirement benefit, known as your primary insurance amount -- was set at 65. That all changed in 1983, when Congress passed a series of changes to Social Security.
One change gradually increased the full retirement age from 65 to 67. For anyone born in 1960 or later, the full retirement age is now 67.
But if you're still working and planning to coordinate your retirement date with the timing of your first Social Security check, 65 could be the perfect time to claim. Yes, you'll still be accepting a reduced benefit, as we'll explain in the next section. However, retiring may be more affordable at that point because you'll qualify for Medicare coverage.
Healthcare is a major concern among financial planners when someone wants to retire early. The average 60 year old paid around $1,016 per month for private health insurance in 2021. If you can continue working and remain on your employer's health plan, delaying retirement until 65 could have a big payoff and help you avoid dipping into your investments.
Once you're enrolled in both Social Security and Medicare, Social Security will automatically deduct your premiums for Medicare Part B, which covers routine healthcare, like doctor visits and outpatient services, from your monthly checks. If you have Medicare Part D prescription drug coverage or a Medicare Advantage plan (Medicare Part C), you can also arrange to have the premium deducted from your benefit.
It's important to note that you don't need to be taking Social Security benefits to be eligible for Medicare. But if you're planning to start Social Security when you retire, continuing to work until 65 and starting both Social Security and Medicare at the same time could make sense.
How much will my benefit be reduced at age 65?
Social Security reduces your benefit by 5/9 of 1% for every month you claim early. If you start benefits more than 36 months early, each additional month of early benefits will reduce your check by an additional 5/12 of 1%. So if you start benefits as soon as you turn 65, you'd receive 13.33% less than you'd get if you waited until 67. That means if your primary insurance amount is $2,000, you'd receive about $1,733.
It's also important to consider the impact of waiting beyond age 67. For each year you delay Social Security past full retirement age, you'll earn an additional 8% delayed retirement credit until you hit your maximum benefit at 70. Waiting until 70 would increase that $2,000 monthly benefit to $2,480.
Who should wait longer to start Social Security?
Celebrating your 65th birthday with Social Security and Medicaid benefits is a smart move when you have some flexibility in your retirement planning. Unfortunately, some seniors are forced out of work earlier because of health problems, job losses, or caregiving responsibilities.
In this scenario, you may not be able to wait until 65. And if you're in great health and you have a family history of longevity, you may want to delay well beyond age 65, especially if you're worried about making your savings stretch over a few decades.
Just keep in mind that even with Medicare, healthcare costs in retirement are exorbitant. In 2022, the average 65-year-old retired couple could expect to spend $315,000 on healthcare expenses during retirement, according to a Fidelity analysis. It's essential to account for those costs in your retirement budget, whether that means working longer to sock away more money in your 401(k) or downsizing your plans for your senior years.
