Turning 62 might not sound like a milestone birthday, but it is: That’s the earliest age the Social Security Administration (SSA) allows individuals to begin taking benefits from the system.
Still, that doesn’t mean you should jump at the chance the minute this checkered flag waves. Waiting to start drawing benefits until as long as age 70 can mean increasing your monthly take by as much as 8% a year.
For context, as of 2017, the average monthly benefit was just over $1,400. For today’s seniors, that represents a major income artery — roughly one-third of the money they have to live off of, according to SSA data.
5 factors to help you decide
An 8% annual bump in Social Security benefits is a pretty big incentive to put off filing for benefits. But there are other considerations:
Your “full retirement age.” Although individuals are eligible to start collecting benefits starting at 62, only when you reach Uncle Sam’s definition of full retirement age will the SSA pay 100% of your benefits. For those born in 1960 or later, it’s age 67. (If you were born before 1960 see the SSA table to find out when you can celebrate.)
For someone whose full retirement age is 67, starting benefits at age 62 means taking a nearly 30% monthly hit.
You can certainly retire before then, but the amount you get each month will be reduced a fraction of a percent for each month you started taking benefits early. For someone whose full retirement age is 67, starting benefits at age 62 means taking a nearly 30% monthly hit. Conversely, pushing the date forward earns you delayed retirement credits (up to age 70) and increases the size of your monthly Social Security check. Using the same example, delaying until age 70 means receiving 124% of what you would have gotten at your full retirement age.
How hearty your family tree is. If you come from healthy genetic stock — lots of relatives who became octo- and nonagenarians — and you expect to live long and prosper, too, waiting to file may be the better way to go. Extra padding on Social Security checks can come in handy if there’s a good chance you might outlast the rest of your investment income.
But filing early can ease the financial burden if you’re dealing with pricey health issues, especially if you stop working and lose access to employer-provided health insurance before you’re covered by Medicare. Also, if those health issues make it unlikely you’ll live into your 70s, waiting to take benefits may simply not be worth it — unless you’re looking to boost your surviving spouse’s future benefits. (There’s more on this below.)
Whether you’re still working. You can continue to work and still get your full benefits once you reach your full retirement age. Before that, some of your benefits may be withheld, depending on how much you earn above the annual limit. (For 2018 the limit is $17,040 for individuals who won’t reach full retirement age during the year.) You’ll still get credit for those earnings and the SSA will recalculate your benefit when you reach full retirement age.
If you’re eligible for benefits on someone else’s record. If you’re half of a twosome — even a divorced twosome — the effect of all of the issues above should be considered for both parties and, if living together, on you as a couple. For example, a spouse in poor health may want to start benefits early while the healthier one delays filing. Or if you’re the higher earner, you may want to delay to receive a heftier benefit while you’re still alive and, if you die first, a higher survivor protection for your spouse.
If you want to invest the cash. Nowhere does it say you’re required to spend the money you get from Social Security. You can invest it in stocks, bonds, real estate or whatever. (We lay out some of your options In “How to Invest Money.”)
One investment-related thing you cannot do with Social Security money is count it as “earned income” in order to qualify for an IRA. However, you can still invest via a regular taxable account. Just remember that in the short-term some investments can be very volatile and not appropriate for any cash you know you’ll need in the near term (the next five years or so). Weigh that against the guaranteed return you would get on your money by waiting to file and amassing more delayed retirement credits.
Think it through and get a second opinion
Deciding when to flip on the Social Security benefits switch isn’t a decision to make lightly. Once you start taking benefits, the amount you receive sets the base for how much you’ll get for the rest of your life. Also, annual cost of living adjustments (COLA) will be based on that amount.
But you can get one do-over in your lifetime: If you start receiving benefits, then decide you can hold out longer to get a higher payout, there’s a 12-month window to change your mind and repay the money you’ve already received.
Not sure where you stand today? The SSA Retirement Estimator provides a ballpark benefit amount based on your actual Social Security earnings record. If you find you have more questions on Social Security issues, a certified financial planner can help you run through various scenarios taking into account the income streams available to you, ongoing investment returns, taxes and other parts of retirement planning.
Deciding when to take Social Security is a decision that will affect the rest of your life. Hiring a pro to talk you through the options can be a worthy investment.