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3 Things That Affect When You Should Take Social Security

Determining when to start taking Social Security may seem comparable to picking what retirement lifestyle lies behind Door #1, Door #2 or Door #3. That’s because claiming Social Security early, later or at full retirement age affects the amount of your monthly benefits.

Future retirees likely feel pressured to make the right choice as many expect to use the lifetime benefit as a primary source of income. In a 2013 Gallup survey of non-retirees, Social Security ranked second behind retirement savings accounts as an expected major income source.

Ultimately, when to take Social Security is a personal decision, so one specific age won’t be best for all retirees. However, all retirees should consider these three factors as they look to open the right door to retirement.

1. The difference in benefits is based on when you start collecting

One variable in how the Social Security Administration calculates your monthly benefits is your age when you begin receiving them. Starting at full retirement age (FRA), which depends on the year you were born, entitles you to 100% of your benefits. Beginning to receive them at age 62, the earliest option, permanently reduces your benefits by 25%.

If you delay payments beyond full retirement age up to age 70, you are rewarded with retirement credits of up to 8% for each year of deferment. Figure 1 shows how monthly benefit amounts can differ based on the recipient’s starting age.

Figure 1: How monthly benefit amounts differ based on the age you decide to start receiving benefits (assumes a benefit of $1,000 at a full retirement age of 66)

Figure 1
Source: Social Security Administration

In a sense, the delayed-retirement credits provide an 8% investment return. However, if you live to the average life expectancy, then you will collect about the same amount in total no matter what age you start. This is known as the break-even age. Generally, you can receive lower monthly payments over a longer time period or higher monthly payments for a shorter time period.

Additionally, it is important to also consider longevity risk–the risk of outliving your money. If you live a long life, a higher Social Security benefit may help reduce your chances of having an insufficient income in retirement.

Possible reasons to delay

  • You have a sizeable investment portfolio or other income sources you are comfortable living off of until age 70
  • You want a lower probability of having insufficient income later in life

Possible reason to not delay

  • You have limited retirement savings and are uncomfortable with the potential demands on your assets


2. Your life expectancy

Contemplating when you will die is unsettling, but it can help you plan how you will live until then. Of course, it is impossible to know the exact date. Fortunately, we are living longer on average and have a high probability of reaching our late 70s and 80s. See Figure 2 for the chances that one person in a married couple, both age 62, will live until various ages.

Figure 2: Chances one person in a married couple reaches later ages (both 62)

Figure 2
Source: Center for Retirement Research at Boston College

Surveying your family history and your current health should give you a decent indication of your chances to live beyond the average expectancy.

If you feel it is unlikely that you will live to or past the average life expectancy – maybe due to a medical condition – then there is little reason to delay Social Security payments. However, if you are in good health and seem to have good family genes, meaning you have a high chance of exceeding the break-even age, then you may have the opportunity to delay and potentially collect a larger sum over time.

Possible reason to delay

  • You are in great health with a family history of long lifespans

Possible reason to not delay

  • You don’t expect to live to or past the average life span


3. The quality of life you desire in retirement

As an income source, the amount of your Social Security benefits and the time you start receiving them should align with your long-term financial goals in retirement. Some workers may want to retire early while others willingly work into their 70s.

According to a Government Accountability Office study, 62 “remains the most prevalent age to claim Social Security benefits.” Unfortunately, this could be out of necessity rather than by design.

Possible reasons to delay

  • Your future financial goals require more money than currently saved
  • You want to continue working until 70 or later

Possible reasons to not delay

  • You need the money immediately and have no choice to delay, or do not want to struggle while waiting
  • You want to retire as soon as possible and need the income

Still, if Social Security along with your other income sources can fund your desired standard of living and help accomplish your financial goals when you expect to, then you shouldn’t feel pressured toward either option based on popular opinion. The best age to collect may be when Social Security payments can provide peace of mind in which to enjoy your retirement.