One of the biggest questions asked when folks get to retirement age is, "when should I take Social Security?" Unfortunately it is not as cut & dry as people think and there are thousands of different ways to collect. A quick snapshot of ways to collect cannot cover all the intricacies of Social Security or explain how to avoid the potential pitfalls. Below is a summary of how benefits are collected and reviews potential reductions and increases in benefits depending on when you collect.
The biggest variable in analyzing how to maximize your social security is how old you’ll be when you pass. The calculation and benefit selection would be very simple if we knew how long we’d live. But since this is out of our control, we must rely on other factors to make the best choice. Some factors that come into play when developing a social security strategy include current resources, current & future health, life expectancy, employment, and survivor benefit needs, etc.
Let’s get into the 3 ways Social Security is collected. The first is Early. If your FRA is 67, your benefit will be reduced by:
- 30% if you begin collecting at 62
- 25% if you begin collecting at 63
- 20% if you begin collecting at 64
- 13.3% if you begin collecting at 65
- 6.7% if you begin collecting at 66
To collect your full benefit without penalty you must wait until your Full Retirement Age (FRA). See the FRA chart on the ssa.gov website to see when your FRA is. As you can see in the bullets above, each year you delay your benefit grows. That’s the case for folks who delay past FRA as well. Each year you delay past your FRA, you will receive an 8% increase in benefit.
Although everyone’s situation is different, the break-even point where the total value of higher benefits from delaying to FRA starts to exceed the total value of lower benefits (started at 62) typically falls around age 76-78. So if you believe your life expectancy is before that age, then it may make sense to collect right away at 62. Conversely, if longevity runs in your family and expect to live well into your 90’s then delaying will increase the total amount of benefits collected over a lifetime.
The latest you can collect is age 70 which would grant you the highest benefit (76% higher than collecting at 62). By delaying you could end up collecting hundreds of thousands of dollars more over your lifetime.The key takeaway is that there are many different ways to collect and it is important to consult with an advisor to help determine the best way to maximize your benefit.