When and How to Collect Social Security

The Social Security Act was signed by President Roosevelt in 1935, due in large part to the economic hardships brought on by the Great Depression. Although some of its provisions were intended to provide immediate relief for families, Social Security was primarily created to provide reliable income that would serve as a safety net for retired workers age 65 and older.

As with any federal program, the rules have changed over the years. Benefit amounts have changed. Retirement ages have changed as life expectancy has increased. Until recently, there were more ways to maximize Social Security benefits, but some disappeared when the Bipartisan Budget Act of 2015 was passed. If you’re approaching retirement age, don’t assume you can follow the same strategy as your friend or older sibling who retired five years ago.

The second thing to keep in mind is that there is no golden rule for when and how to collect Social Security. It depends on your health and life expectancy, financial needs, marital status and other factors.

What Is My Full Retirement Age?

When you reach full retirement age, you can receive full Social Security benefits even if you continue to work, regardless of your income. Traditionally, the full retirement age was 65. Today, it’s 66 for people born in 1943-1954. It will eventually increase to age 67 for people born in 1960 or later. If your birthday is on January 1, the Social Security Administration (SSA) says you should go by the previous year.

Social Security Basics

Regardless of your full retirement age, you can start receiving Social Security benefits as early as age 62 or as late as age 70. However, for every month before your full retirement age that you start collecting benefits, the amount you receive will be reduced by a certain percentage.

For example, if your full retirement age is 67 and you start receiving Social Security at age 62, the benefit would be reduced by 30 percent. If your full retirement age is 66, the benefit would be reduced by 25 percent.

On the other hand, if you decide to hold off on collecting Social Security, the benefit will increase 8 percent for each year you don’t take them. If your full retirement age is 67, you would receive 24 percent more. For age 66, the benefit would increase 32 percent.

However, the appeal of an increased benefit can be misleading because you’ll be forgoing years of smaller benefit checks. The average person who waits until age 70 won’t break even until they’re 80 years old.

If you receive a pension or some other retirement income that’s enough to cover your expenses after you retire, collecting and investing Social Security payments may be more advantageous than waiting and investing. Again, every individual’s situation is unique.

Should I Claim Social Security Benefits Before I Reach Full Retirement Age?

If you start collecting Social Security before your full retirement age, not only is the benefit amount reduced but if you continue to work, you have to start giving money back to Social Security once you earn a certain amount.

In 2017, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual limit of $16,920. For example, if you collect early and make $30,000, you’ll have to give back about $7,000 to Social Security. The annual income limit increases each year.

Again, everyone’s situation is unique. If you need that money, you might not be able to wait until retirement to collect Social Security. Life can throw a monkey wrench into even the most carefully thought out strategy.

What if I’m Married?

More planning comes into play if you’re married. Decision-making is based on spousal and survivor benefits and eligibility, as well as financial needs and health situation.

For example, suppose the married couple is close in age. The spouse with the smaller benefits might want to start collecting Social Security earlier, while the higher earner waits until age 70. If the higher earner passes away, the living spouse can continue to collect the larger Social Security benefit. However, if both members of the couple have health concerns, claiming early might make more sense.

It would be virtually impossible to cover every Social Security scenario for individuals and married couples based on various health and financial situations. At the same time, the strategy that worked for one person might not work for you. That’s why it’s important to talk to a financial advisor, retirement planner, and accountant before deciding how and when to collect your Social Security benefits.

In the meantime, it’s a good idea to do some research. Start by using the SSA’s calculators for monthly benefits, retirement age, and life expectancy.

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