The Best Age to Claim Your Social Security - A Few Things to Consider

During the Covid pandemic, many people were forced into retirement earlier than they had planned.  The same situation often happens to people at other time, such as when they become seriously ill, or they need to retire to care for a family member or deal with other problems.  Unfortunately, when people take their Social Security benefits early, this decision will have an impact on them for the rest of their lives. However, in a crisis such as an international pandemic, a job loss, or a medical crisis, most of us have to do whatever we can to survive.

Fortunately, most people are able to wait and collect their Social Security benefits when they think they are financially prepared for retirement. Since people can begin to collect their Social Security retirement at any time between ages 62 and 70, what is the best age? Below are a few issues to consider.

Should You Collect Before Your Full Retirement Age?

As mentioned before, in a crisis you should claim your benefits if it is truly a matter of being able to pay your rent, buy groceries and survive. In addition, if you have a terminal illness and do not expect to live more than a few more years, then collecting early makes sense.  In these situations, many people claim their benefits as early as age 62, or may claim them just a couple of years early, such as at age 64.

However, if you claim your benefits before your full retirement age of about 66 or 67, your income will be reduced by as much as 30% every month for the remainder of your life, especially if you begin collecting benefits at age 62!  If you are able to postpone claiming your benefits for a couple of years, it could benefit you substantially in the future.

If you want to estimate the exact amount you will lose by collecting early, here is an explanation from ssa.gov - the website for the Social Security Administration:

"In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent."

As a result of this substantial reduction in your retirement benefits, you need to think carefully if you are considering collecting your benefits before your full retirement age. 

Should You Collect Social Security at Your Full Retirement Age?

In general, most people should wait AT LEAST until their full retirement age of 66 or 67. By age 65, you will be eligible for Medicare, which reduces the cost of medical insurance for many people. 

The government estimates that if you expect to live until age 82 years and 6 months or less, you are better off starting to collect your Social Security benefits at your full retirement age.

Should You Wait Until Age 70 to Collect Your Social Security Benefits?

Many retirees will be better off if they can postpone their retirement until after their full retirement age, up to age 70. This is because about one-quarter of men and one-third of women will live until they are 90 years old or older. 

If you believe you will live longer than age 82 1/2, then you are better off waiting to collect until age 70, because your benefits will increase by 8% a year for each year after 66 or 67 that you defer collecting your benefits. If you are healthy in your late 60s and have a family history of long-lived relatives, you will probably be better off waiting to collect your Social Security benefits until you are 70.

How Does Your Decision Affect a Dependent Spouse?

The longer you wait to collect your Social Security, the better off a dependent spouse will be, as well. This is because they can collect an amount equal to 50% of your benefits when they reach their own full retirement age and, if you die before they do, they can get their benefits increased to an amount equal to your full benefits, as long as they wait until their full retirement age before they begin to collect. 

If your spouse had low earnings during their lifetime, this could make a significant difference in their later years. As a result, waiting until age 70 will not only benefit you financially, but also your dependent spouse. Therefore, even if you do not expect to live past 82 1/2, but you believe your spouse will, it may still be a thoughtful decision to postpone collecting your Social Security benefits as long as possible.

Here's an example of how this would work.

Let's say you would receive $2,000 a month if you collect at age 67, but would collect around $2,500 a month if you wait and collect your benefits at age 70.

Your dependent spouse who waits to claim their benefits at age 67 would be able to collect $1,000 a month if you start collecting at age 67, but they would be able to collect around $1,250 if you wait to collect at age 70.

If you collect your benefits at age 67, your benefits as a couple would be around $3,000 a month.  If you collect at age 70, and your spouse waits until at least age 67, your benefits as a couple would be around $3,750.  If you die before your spouse, they would be able to collect $2,500 a month rather than $2,000.  

These are round numbers, because your actual amount would be based on your lifetime earnings plus the annual cost-of-living increases.  However, you can see from that example that waiting as long as possible before you retire could make a substantial difference in your quality of life as you age.

Speak to a Financial Planner

Before you make a final decision about when to collect your Social Security benefits, discuss your options with your financial planner. They can help you decide if you would be better off financially by living off your retirement savings for a couple of years, if necessary, in order to postpone collecting your Social Security. Many financial planners have computer programs which will calculate your various options, help you predict your longevity, and assist you in planning your long-term financial situation regardless of how long you live.  You want to be well informed before you make a final decision.

While people who have a traditional retirement IRA will be required to take a RMD, or Required Minimum Distribution, in their 70s, they are NOT required to spend that money.  You can remove the money from your IRA and reinvest it for as long as possible, so that you continue to build your assets until you absolutely need to use them.

You Might Need a Side-Gig

Many retirees are picking up small part-time jobs or side-gigs to help them get through their retirement years, while minimizing how much money they need to draw from their retirement savings. Doing something like this can bring you peace-of-mind so you worry less about running out of money when you are near the end of your life.  

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As many of the readers of this blog know, I have set up an Etsy store as a fun way to help others and supplement my own retirement income.  One example is the lovely anniversary necklace you can see shown here.

You can even have the message on the card inside the gift box personalized with whatever message you would like to share with a loved one.

 You can check it out at:

  DeborahDianGifts.etsy.com

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If you are interested in learning more about retirement, Medicare, Social Security, common medical issues as we age, financial planning, where to retire and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional helpful articles.

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Social Security at Age 70 Maximizes Future Income

We have all been told by financial and retirement planners that the best way to maximize the size of our Social Security benefits is to wait until age 70 to begin collecting.  However, according to research completed by the Transamerica Center for Retirement Studies, only one percent of retirees who are currently receiving Social Security waited until they were 70 years old before they claimed their benefits.  The median age to claim was 62, which is also the earliest most people can claim, meaning that the vast majority of senior citizens are willing to take reduced benefits rather than wait eight years in order to receive substantially more money.

Why Don't People Wait Until Age 70 to Claim Social Security?

If people can receive more money by waiting to receive their benefits, why don't they?

1.  Most Americans cannot afford to wait. As soon as they decide to stop working, they must begin to collect their benefits because they don't have enough assets to support themselves.  The median household between the ages of 60 and 64 has approximately $202,000 saved for retirement.  At a 4 percent withdrawal rate, that is only $8,000 income a year, which is not enough income to live on.

2.  In addition, 60 percent of retirees stop working sooner than they planned ... which means they need to start taking their benefits earlier than anticipated.  Of that 60 percent, about two-thirds stop working because they lost their job; a little over one-quarter of them retired because of health problems.

3.  Some Americans have been misled to believe that Social Security will soon run out of money, so they rush into claiming their benefits as soon as possible.

4.  A few people nearing retirement believe they can successfully invest their Social Security benefits while they are still working, doing even better than the increased earnings they will receive by waiting.  While a small number may be successful, most of these people will find that their guaranteed increase in benefits is more reliable than their ability to invest the money wisely despite the ups and downs in the market.

When Should You Take Social Security Benefits Early?

Yes, there are times when the smart move could be to take your Social Security benefits as early as possible.

1.  If you have no other way to support yourself because you have lost your job in your 60's or you have developed a major health problem, then your only alternative will be to claim your Social Security ... and be thankful it is available.

2.  You may also wish to collect early if you develop a life-shortening terminal illness.  The average man at age 65 can expect to live until age 84.3; the average woman should live until age 86.6.  If your life expectancy has been significantly reduced because you are on kidney dialysis or have a cancer that has metastasized, for example, then you may have good reason to take your benefits early.

Spousal Benefits Can Complicate the Decision

Even if you fall into one of the categories that would justify taking your Social Security benefits early, there is one reason why you may decide to postpone collecting as long as possible ... the effect your decision will have on your spouse.

For example, if you could receive $3,000 a month at age 70, your spouse would also be entitled to $1,500 a month at their full retirement age of 66 or 67.  If you die after age 70, your spouse would then get their benefits bumped up to what you have been receiving.  On the other hand, if you collect in your early 60's and only receive around $2,000 a month, everything will be proportionally reduced for your spouse, as well.  If you want to be sure your spouse will have enough money to live on after you are gone, you may want to postpone collecting as long as possible.

Does It Make a Difference in Your Total Lifetime Earnings?

While your monthly benefits are higher the longer you wait, will it really make a difference to your lifetime earnings?  The Social Security Administration uses actuarial tables to estimate how much more people can receive the longer they wait.  While, of course, individual results will differ depending on their actual lifespan, the Social Security Administration say, "As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime."

Of course, that applies to those people who live an "average" length of time!

If you are interested in learning more about Social Security, Medicare, financial planning, where to retire, common health problems or other issues related to retirement, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional articles.

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