Deciding When to Begin

A presidential commission has recommended increasing the early retirement age for Social Security to 64 and the full retirement age to 69. Fortunately, the plan, if adopted, would be phased in slowly and wouldn’t be fully implemented until 2075.¹

Currently, most Americans can choose to start collecting benefits at full retirement age, which ranges from 65 to 67 depending on the year they were born, or to receive a reduced benefit as early as age 62. This is an important decision, so it’s a good idea to consider all the factors involved.

It’s About Monthly Income

If you claim benefits at age 62, the amount you receive each month would be about 70% of your full retirement benefit. Each month you wait to claim benefits after age 62, your monthly benefit increases slightly, so that at full retirement age you would be entitled to 100% of your full retirement benefit. For each month you wait to claim Social Security after full retirement age, your monthly benefit will continue to increase until you reach age 70, when you could be entitled to about 132% of your full benefit.

If you live an average life expectancy, you will collect the same amount in lifetime benefits regardless of whether you begin benefits at age 62, full retirement age, or 70. Benefits are reduced at younger ages because, in theory, you will be collecting them for a longer period of time.

It’s important to consider your current financial situation and health as you decide when to begin collecting benefits. If you expect to keep working while collecting early benefits, a portion of your benefit will be withheld if your annual earnings exceed the earnings limit. No earnings limit applies after you reach full retirement age.

If you are healthy and don’t need the money, it might be a good idea to wait to claim your benefits so you can lock in a higher monthly income. Calculating your breakeven age may help you decide. This is the age at which the total amount you collect by claiming early benefits would equal the amount collected if you waited until full retirement age. If your breakeven age is later than your probable lifespan, you might be better off taking early benefits.

There may be other factors to consider depending on your circumstances. Deciding when to collect benefits is a big decision that should be considered carefully.

1) The New York Times, November 10, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.