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When is the Best Time to Start Collecting Social Security?

Deciding when to begin receiving Social Security is a complex decision influenced by various factors, such as your health, retirement plans, and marital status. The timing of your claim can significantly impact the size of your monthly benefit.

You are eligible to claim Social Security benefits anytime between the ages of 62 and 70. However, the earlier you begin receiving payments, the smaller your monthly benefit will be. On the other hand, delaying benefits results in larger payments but fewer checks over your lifetime. This decision requires careful consideration of whether you prefer to receive smaller payments over a longer period or larger payments for a shorter time.

Understanding Full Retirement Age (FRA)

Full Retirement Age (FRA) plays a crucial role in determining the amount of Social Security benefits you receive. Every retiree has a Primary Insurance Amount (PIA), which is the standard benefit calculated based on your highest-earning 35 years. The PIA reflects a percentage of your wage-adjusted average income.

If you choose to claim benefits exactly at your FRA, your monthly Social Security check will equal your PIA.

The FRA was originally set at 65 when the Social Security program was established, but changes made in 1983 gradually increased it for individuals born in 1943 and later.

For those born in 1960 or after, the FRA is now 67. Claiming benefits before your FRA will result in a reduction of your monthly payments due to early filing penalties.

Full Retirement Age by Birth Year

Your FRA depends on your year of birth. Here is a breakdown of full retirement ages based on birth year:

• Born between 1943-1954: FRA is 66

• Born in 1955: FRA is 66 years and 2 months

• Born in 1956: FRA is 66 years and 4 months

• Born in 1957: FRA is 66 years and 6 months

• Born in 1958: FRA is 66 years and 8 months

• Born in 1959: FRA is 66 years and 10 months

• Born in 1960 or later: FRA is 67

Claiming Social Security at Age 62

Age 62 is the earliest you can start collecting Social Security retirement benefits, and many individuals opt to do so for various reasons.

Some may wish to retire early, either by choice or due to circumstances such as health issues, family responsibilities, or limited job opportunities. Others prefer to claim benefits while they are younger and in good health, or they may want to preserve their personal savings for later in retirement.

However, starting benefits at age 62 results in the largest early filing penalties. For example, if your FRA is 67 and you claim at 62, your benefit will be reduced by 30%.

If your PIA at FRA would have been $1,500, you will only receive $1,050 per month if you begin claiming at 62. This reduction is permanent, meaning that once you claim early, your benefits will not increase to what they would have been had you waited until FRA.

While starting early leads to a smaller monthly check, it does allow you to receive benefits for more years, which could be advantageous if you prefer a longer period of guaranteed income.

Delaying Social Security Benefits

Delaying Social Security benefits is another option that can result in higher monthly payments. While technically, delaying begins as soon as you wait beyond age 62, you won’t start earning delayed retirement credits until after your FRA. These credits can increase your benefit amount for each month you postpone claiming beyond FRA, with no credits after age 69.

For instance, if your PIA at FRA is $1,500, and you wait until age 70, your benefit will increase by 24%, thanks to delayed retirement credits. This means you would receive $1,860 per month at age 70.

Although you forego several years of payments by waiting, your larger monthly benefit may be more beneficial in the long run, depending on your financial situation and longevity.

Penalties for Early Filing and Rewards for Delaying

Filing before your FRA incurs early filing penalties. For the first 36 months before your FRA, the penalty is 5/9 of 1% per month, or a 6.7% annual reduction in your benefit. Any months beyond that incur a penalty of 5/12 of 1% per month, resulting in a 5% annual reduction. For example, claiming five years before your FRA would reduce your benefit by 30%.

On the other hand, delaying your claim after FRA allows you to earn delayed retirement credits. These credits increase your PIA by 2/3 of 1% per month, or an 8% annual increase. Waiting until age 70 can significantly boost your monthly benefits, offering a financial advantage for those who can afford to delay.

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Nothing in this newsletter is financial advice. Always do your own research and think for yourself.