If you’re nearing retirement, you’ve likely paid into the Social Security system for the duration of your career. It’s only fitting that you cash in on the benefits you’ve long been contributing to, but when should you start receiving benefits — at the first available date, at the latest date, or somewhere in between?
The answer depends on your personal circumstances and preferences. Here’s some guidance to help decide what’s right for your current situation.
The Social Security Administration (SSA) says you’re entitled to receive 100% of the benefits based on your earnings history at full retirement age (FRA), also known as normal retirement age (NRA). The following chart provides the FRA based on when you were born.
If you were born on the first day of a month, the SSA considers you to have been born in the previous month. Therefore, if you were born on June 1, 1954, you reached your FRA in May 2020.
Some people opt to take benefits before they reach their FRA. You can begin receiving benefits as early as age 62. In that case, the monthly benefits are reduced by as much as 25% of the FRA amount. If you don’t take benefits early, the monthly benefit increases gradually until you hit the 100% amount at your FRA.
Alternatively, some people decide to wait to receive benefits until after they’ve hit their FRA. These people are entitled to higher monthly payouts. Essentially, benefits are increased by 8% for each year you delay taking benefits until age 70. Thus, the maximum increase for Baby Boomers with an FRA of 66 is 32% (8% × 4 years). Once you’re 70, the benefits completely max out.
This creates a range of options. For instance, if you have substantial income from other sources, you may want to leave your job early and begin collecting benefits at age 62. Or you might wait until age 70 to lock in the highest monthly benefit, but this option has a major downside: If you pass away during this “waiting period,” you’ll never collect benefits.
Every situation is different. The following six key factors may affect your decision.
Both techniques are no longer available, but people born before January 2, 1954, can still use the restricted application strategy.
There are many issues to factor into your decision, so it’s important to look beyond online calculators for guidance. Contact us to discuss the optimal time to start taking Social Security benefits based on your current situation.