Making personal decisions about when you begin collecting Social Security benefits is full of what-ifs, many of which won’t be known until long after your decision is made. But the Social Security Administration (SSA) provides many helpful guidelines and suggestions to narrow the scope of your considerations.
Before we review a selection of these guidelines, it’s important to know the two major factors that determine the size of your benefit payments. First, benefit payments are based on how much you have earned during your working career. Higher lifetime earnings result in higher benefits.
Second, the age at which you decide to retire also affects your benefit. For example, if you retire at age 62, the earliest possible Social Security retirement age, your benefit will be lower than if you wait.
Categories of retirement age
Normal or full retirement age
|Year of birth||Full retirement age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
Full retirement age is the age at which you may first become entitled to full or unreduced retirement benefits. Because the official full retirement age (FRA) is in the process of changing, determining your FRA is stratified by year of birth, as demonstrated below.
If you were born in 1950 or earlier, you are already eligible for your full Social Security benefit. By the way, people born on January 1 of any year should refer to the previous year.
Early and delayed retirement
Early: You can begin to receive Social Security retirement benefits as early as age 62. However, if you choose early retirement, your benefit will be reduced until you reach full retirement.
Delayed: On the other hand, you can postpone receiving benefits past your FRA, up to age 70. In this case, your benefit payment can increase in two ways, described below.
Differences in benefit amounts based on retirement age
Monthly benefit amounts differ based on the age when you start receiving them.
Simply put, if you decide to start benefits before your full retirement age, your monthly benefit will be smaller, but you will receive it for a longer period of time. If you put off receiving your benefits at your full retirement age or later, you will receive a larger monthly benefit for a shorter period of time.
- With early retirement, a benefit is reduced 5/9 of 1 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 1 percent per month.
- With delayed retirement, a credit is generally given for retirement after the normal retirement age that would increase your benefits. To receive full credit, you must be insured at your normal retirement age. No credit is given after age 69.
Whether you start benefits before full retirement age or wait until full retirement or later, the amount you receive when you first get benefits sets the base for the amount you will receive for the rest of your life.
Additional delayed retirement considerations
If you choose to keep working beyond your full retirement age, you can increase your future Social Security benefits in two ways.
- Each extra year you work adds another year of earnings to your Social Security record. Higher lifetime earnings can mean higher benefits when you retire.
- Benefits increase a certain percentage (depending on your year of birth) from the time you reach full retirement age until you start receiving benefits or until you reach age 70. For example, if you were born in 1943 or later, SSA adds 8 percent to your benefit for each year you delay payments beyond your full retirement age up to age 70.
Other factors affecting your decision
Among the many factors that you will want to consider related to taking your Social Security, the following are some of the more significant ones: current cash needs, current health, and family longevity. Other important considerations include working in retirement, other sources of retirement income, and spousal benefits. We will cover these considerations in our next blog on getting ready for Social Security.
For more information on this multi-faceted and very personal decision, we encourage you to consult your LaPorte CPA, who will be familiar with your financial circumstances and can help you in determining the best time to start taking Social Security benefits. We also encourage you either to call your local SSA representatives, who are also very helpful and informative, or to visit the retirement benefits page of the Social Security.
For additional information, please visit “Getting Ready for Social Security Part 2: Other Factors Affecting Your Decision.”