When it comes to setting yourself up for a comfortable retirement, one of the most important decisions you can make is settling on when you want to start collecting your Social Security benefits. You can receive them as early as age 62, or delay starting to collect up to age 70. We each have a "full" retirement age, and the earlier before that we start collecting, the smaller our checks will be, while the longer we delay beyond that age, the bigger they'll grow.
What's the best age at which to start? Well, it's different for different people. Here are three perspectives from Fool contributors who share their thinking on the issue.
Sean Williams: Given that I'm still roughly 26 years away from reaching the first age at which I'll become eligible to claim Social Security, I'm leaving the door open somewhat for my withdrawal strategy to evolve a bit. However, based on my current financial situation, I'm leaning strongly toward taking Social Security benefits at age 62.
Taking benefits at age 62 is a popular option, with the Centers for Retirement Research at Boston College showing (using 2013 data) that 42% of men and 48% of women choose to take benefits as early as possible. The downside of signing up early for benefits is that you'll be locked into receiving a benefit that's well below what you'd be entitled to if you waited until your full retirement age, or FRA. Your FRA is a dynamic number based on your birth year -- and for me it's 67 years. Thus, if I took Social Security benefits immediately upon reaching age 62, my benefit would only be 70% of my FRA.
There are two particular reasons why I'm strongly considering taking benefits at age 62. First, I prefer a sure thing instead of a gamble. I have absolutely no clue how long I'm going to live, and my family history features a hodgepodge of family members who lived into their 90s, as well as others who've passed away well before reaching the age of 60. The current inflection point in terms of lifetime benefits received from Social Security is age 78, meaning someone claiming at age 62 and someone claiming at age 70 will have received essentially equal lifetime benefits by age 78, all things being equal. Personally, age 78 seems like a gamble to me, and I would rather take the guaranteed income at age 62.
More important, however, is the fact that I'm aiming for Social Security to generate only a small fraction of my retirement income. If I can continue to save and invest for the future, Social Security income will be used for the pursuit of travel and hobby interests rather than to cover basic monthly expenses.
Healthcare costs can put a crimp in your retirement. PHOTO: SOURCE
But my thinking has changed a little, and it boils down to one simple thing: Long-term care.
The statistics are pretty stunning. About 70% of those over 65 today will need long-term care. Men who need it will need about 2 years' worth on average, while women will need even more (because they typically live longer). Here's the kicker: Health insurance and Medicare won't pay for the majority of that care. For instance, if you are injured, Medicare and medical insurance will pay for your medical treatment -- and rehab if necessary. But if you need assistance with daily activities such as preparing meals, bathing, or dressing -- and this is common for the elderly -- you're often on your own. This is why a huge amount of long-term care is provided by family members, and unpaid. On average, a caregiver spends 20 hours per week providing care.
That can be a tremendous burden on a family, and it's one that I've lived through firsthand. Delaying taking my Social Security benefit will result in a higher monthly payment. If I die young, I may "lose out" on some total dollars by having not started collecting sooner. But if I live well into my 80s, the higher benefit will mean my other retirement assets last longer, and I'll have more income to cover long-term care expenses and lessen the burden on my family and myself later in life.
Selena Maranjian: I'm still a decade or more from retirement, so I don't have to decide right away exactly when I'll start collecting my Social Security benefits. It's smart to give the topic a lot of thought, though, and I have. So far, I feel torn between starting to collect as early as I can, at age 62, and delaying as long as possible, to age 70.
The reasons are obvious. By delaying, I can make the checks bigger -- by 8% per year between my full retirement age of 67 and 70 -- for a total enlargement of about 24%. On the other hand, by collecting as soon as possible, I'll collect smaller checks, but many more of them -- 96 more of them, to be precise, between ages 62 and 70. If that sounds like it might almost be a wash, you're right. According to the Social Security Administration, "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 it is a wash -- on average. Many of us won't lead average-length lives, though, and most of us can't know just how long we'll live. If you live a very long life, waiting for bigger checks will have been worth it. If your life is shorter than average, the earlier, smaller checks would have been best. I suspect that I might end up compromising and just starting to collect my benefits at my full retirement age, 67. It's a Goldilocks solution, giving me checks that are not too small and not too big, and perhaps, I hope, just right.
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