The Simplest way to
GET A BIGGER SOCIAL SECURITY RETIREMENT BENEFIT
Many people decide to begin receiving early Social Security retirement benefits.
I have heard people say that because they have paid in for so long, and they are fearful the system will run out of money, as soon as they are eligible, they will start collecting.
But is that the best decision?
In fact, according to the Social Security Administration, about 72% of retired workers receive benefits prior to their full retirement age. 1
But waiting longer could significantly increase your monthly retirement income, so weigh your options carefully before making a decision.
Timing counts
Your monthly Social Security retirement benefit is based on your lifetime earnings. Your base benefit–the amount you’ll receive at full retirement age–is calculated using a formula that takes into account your 35 highest earnings years.
If you file for retirement benefits before reaching full retirement age (66 to 67, depending on your birth year), your benefit will be permanently reduced.
For example, at age 62, each benefit check will be 25% to 30% less than it would have been had you waited and claimed your benefit at full retirement age (see table).
Alternatively, if you postpone filing for benefits past your full retirement age, you’ll earn delayed retirement credits for each month you wait, up until age 70.
Delayed retirement credits will increase the amount you receive by about 8% per year if you were born in 1943 or later.
The chart below shows how a monthly benefit of $1,800 at full retirement age (66) would be affected if claimed as early as age 62 or as late as age 70. This is a hypothetical example used for illustrative purposes only; your benefits and results will vary.
| Birth year | Full retirement age | Percentage reduction at age 62 |
| 1943-1954 | 66 | 25% |
| 1955 | 66 and 2 months | 25.83% |
| 1956 | 66 and 4 months | 26.67% |
| 1957 | 66 and 6 months | 27.50% |
| 1958 | 66 and 8 months | 28.33% |
| 1959 | 66 and 10 months | 29.17% |
| 1960 or later | 67 | 30% |
Chart data source: https://www.ssa.gov/oact/quickcalc/early_late.html
Early or late?
Should you begin receiving Social Security benefits early, or wait until full retirement age or even longer?
If you absolutely need the money right away, your decision is clear-cut; otherwise, there’s no ”right” answer.
Break Even
Another common discussion about Social Security is the break-even age. The break-even age is the age when total benefits received is equal under different age elections.
Here is an example:
If we assume the full retirement age for a retiree is 65 and he or she chooses to begin receiving Social Security income at age 62, his or her full retirement age benefit of $1,000 is reduced by 20%, leaving the retiree with $800 each month.
If the retiree’s co-worker with the same birth date and similar earnings history elects to receive his or her benefit at full retirement age three years later, the benefit equals $1,000 each month.
For the first three years, the first retiree received $28,800 while the second received nothing.
Once the second retiree starts receiving benefits, he or she receives $200 more each month, or $2,400 more each year than the first retiree.
The Social Security break-even age is 77, or 15 years after the first retiree elected to receive benefits.
After this point, the second retiree earns more over his or her lifetime than the first.
Although mortality is an unknown, retirees who think they may live past the break-even age may want to defer taking their Social Security benefits until full retirement age, while those who do not expect longevity may want to start benefits early.
Wrap up
It is very important you take the time to make an informed, well-reasoned decision. Consider factors such as how much retirement income you’ll need, your life expectancy, how your spouse or survivors might be affected, whether you plan to work after you start receiving benefits, and how your income taxes might be affected before making your Social Security election.
As always, you can consult with me to discuss your retirement income plans
Look for future posts on the best ways to leave a financial legacy to your children and check out my recent post on the different types of IRA’s
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Thanks for stopping by and I hope you achieve financial success!
