Retirement. It's probably on the minds of most Americans who are in their late fifties or early sixties. That's as it should be. Actually, thinking about retirement at an even earlier age -- especially planning for it -- is a good idea too.
But the big decision as you approach retirement is exactly when to make the transition. The level of your Social Security benefits at different ages will probably be an important consideration.
The most popular age to collect Social Security benefits, according to the Social Security Administration (SSA), is 62. That's the earliest age at which benefits can be received. The second most popular age is 67 -- the full retirement age (FRA) for anyone born in 1960 or afterward. How do the average Social Security benefits at 62 and 67 compare?
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A stark difference
The latest SSA data available for the average Social Security benefits for retired workers by age is up-to-date as of the end of June 2023. And they show a stark difference between collecting benefits at age 62 versus age 67.
Retired workers aged 62 received an average monthly benefit of $1,277 (all numbers rounded to the nearest dollar). The average monthly Social Security benefit for retired workers aged 67 was $1,844 -- more than 44% higher.
SSA also provided average benefits by sex. Male retired workers aged 62 received an average monthly benefit of $1,419. This average increased by nearly 45% to $2,052 for male retired workers aged 67. Female retired workers aged 62 received an average monthly benefit of $1,145, compared to $1,454 for females aged 67.
These averages will fluctuate somewhat from month to month. All of the numbers will also increase in 2024 thanks to Social Security's 3.2% cost-of-living adjustment (COLA). However, regardless of how the averages change, the significant discrepancy between ages 62 and 67 will persist.
Social Security's early retirement penalty
There's a simple reason behind the big gap in average benefits for retired workers at ages 62 and 67. Social Security penalizes early retirement.
For every month you collect Social Security retirement benefits before your full retirement age, the amount you receive will be reduced by five-ninths of 1%. If you begin receiving benefits more than 36 months before your FRA, an additional penalty of five-twelfths of 1% per month will be applied. Without going through all of the math, this means that collecting Social Security benefits at age 62 will reduce your benefits by 30% compared to waiting until age 67.
By the way, Social Security also provides a financial incentive to wait to collect benefits after your FRA. Your monthly retirement benefit will increase by 8% per year through age 70.
Other factors to consider
It's possible that your monthly Social Security benefit at age 62 could be more than 30% lower than if you waited until age 67. SSA uses your 35 highest-earnings years to calculate benefits. Many Americans will make more in the later years of their career than in the earlier years.
If you collect Social Security retirement benefits at age 62 but continue to work, SSA could "claw back" part of your earnings. For 2024, $1 from every $2 you make above $22,320 will be deducted from your benefits. In the year you reach your FRA, $1 for every $3 you make above $59,520 will be deducted. You'll get the money back -- but only after you reach your FRA.
Don't forget health insurance costs. If you retire at 62, you'll probably have to foot the full bill for health insurance on your own. However, if you wait until 65, you'll be eligible for Medicare.
