You spend your working career putting money towards Social Security – but how do you get it back when it comes time to take your benefit in retirement? Over 69 million people in the U.S. receive Social Security benefits, so it’s critical to understand how it works!
Everyone’s Social Security benefits are different, so choosing when to begin collecting them is also unique to everyone. And the amount of your benefit you’ll receive can change depending on when you decide to collect.
Timing is everything, but when’s the best time to collect your benefits?
Option 1: Collect Early at 62
The general population is first eligible to collect full Social Security benefits at 62. The only exception is if you’re collecting survivor or disability benefits.
But, while everyone is eligible to collect at 62, it’s still considered collecting early. This is important because collecting early can cause a permanent reduction of your benefits of up to 30%.
While 30% may not sound significant, we’ll give an example to show just how much impact collecting early could have.
Let’s say your monthly benefit check is $3,000. A 30% drop reduces your monthly check by $900, making your total monthly benefit $2,100. If you’re among average retirees with an 18-year retirement, you could lose $194,400 from your Social Security benefits over time.
If you don’t need your monthly Social Security benefits to cover your bills and daily living expenses, it’s likely best to wait to collect.
Another factor is you might still be working at the age of 62! If you are still working and collecting Social Security, you must stay within the earnings limit ($21,240 in 2023). If you do, Social Security Administration (SSA) will deduct $1 in benefits for every $2 you earn over the limit.
Option 2: Collect at Full Retirement Age (FRA)
Full Retirement Age (FRA) is when you can receive your total Social Security Benefit amount. The SSA sets FRA, and it is as follows:
Pro Tip: If you want to get a sneak peek of your total benefit amount, you can create a my social security account.
Collecting at FRA is an excellent option because it has no harm on the amount of benefits you earn, and it doesn’t delay the additional source of income for you to use.
But collecting at FRA isn’t the only option that doesn’t harm your benefit amount!
Option 3: Collect at Age 70
The main benefit of waiting to collect Social Security until 70 is delayed retirement credits.
Every month you delay collecting your benefits up to 70, and you earn delayed retirement credits.
The longer you can wait to collect until you reach age 70, the larger your monthly benefit will be. Collecting at 70 is the best way to maximize long-term social security benefits. It should be noted, though, that there’s no additional benefit to waiting beyond 70 to collect. Delayed Retirement Credits no longer accumulate once you reach 70.
Considerations for Married Couples
Spousal benefits work differently because a spouse is eligible for up to 50% of the primary earners’ benefit if collected at their full retirement age.
Divorced spouses can also be entitled to benefits based on their former spouses earning records. If you were married for at least 10 years, are at least 62 years of age, and are currently single, you could be eligible to collect those spousal benefits from your former spouse. Divorced couples can also access survivor benefits.
Another major factor in deciding when to begin collecting Social Security benefits is concerning your health. If you have concerns about your health and longevity, delaying your Social Security collection may not benefit you. People with health concerns typically choose to collect their benefits earlier.
How To Decide
With these options on the table, how on earth do you decide? This answer will likely not surprise you, but this is an excellent issue to work through with your financial advisor.
Your advisor can ask you:
- What does your current retirement savings look like? Will you need to collect benefits earlier rather than later?
- What does your cash flow plan look like?
- How long are you planning to work?
- If you work into your 60’s, the IRS could take a portion of your benefits (if you exceed income limits) before you reach FRA>
- Are you married?
- If you are, consider strategically timing your benefits collection to benefit both of you.
- Do you have health concerns?
- Will you need funds to cover unexpected health expenses?
- Are you concerned that you won’t be able to enjoy your retirement while you’re still healthy?
You don’t have to take Social Security just because you’re retired. The bottom line is that everyone’s collection strategy is different!
The Social Security collection process can feel like a spiderweb of information. It can be easy to get stuck. But it doesn’t have to be that way!
If you have questions about Social Security collection, retirement planning, retirement income planning, or financial questions in general, please reach out today.
Craig Toberman is the Founder of Toberman Wealth – a fee-only, fiduciary financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.
Craig received a Bachelor of Science (B.S.) degree in Agricultural and Consumer Economics from the University of Illinois and a Master of Business Administration (M.B.A.) degree in Finance from Saint Louis University. He is a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) charterholder, and Certified Public Accountant (CPA).
Craig is a member of the National Association of Personal Financial Advisors (NAPFA), Fee-Only Network, and XY Planning Network.
Craig lives in the greater St. Louis area with his wife, Ally and son, Hank.