When to Start Taking Social Security? Maybe Earlier Than You Think
When to start taking Social Security is a big question for those contemplating retirement. Those who have worked and paid Social Security taxes for at least 10 years are eligible to start receiving benefits at age 62. However, the longer you wait, the higher your monthly payment will be for the rest of your life.
Your monthly benefit reaches the highest level when you reach age 70. So, a common piece of advice is that you should absolutely wait until 70 to apply. But is that always the best option?
Why You May Want to Start Benefits Earlier
You receive 100 percent of your benefit when you reach full retirement age (FRA). Depending on what year you were born, that will be somewhere between age 66 and age 67. If you start your retirement benefits at age 62, your benefit will be around 30 percent lower – permanently – than if you wait until FRA. If you wait until age 70 to start, your benefit can be approximately 24 percent more than it would be at FRA. That seems to be strong evidence that you should wait, right?
But consider this: If you retire at 62 instead of 70, you’ll be getting benefits for eight more years. There’s a break-even point when the higher benefit at age 70 equals the total of the early benefits from age 62. That break-even point is around age 80 or 81.
Can You Take Advantage of That Higher Benefit if You Wait?
Now consider this: The average life expectancy for a man in the United States is 75.8 years, and for a woman, 81.1 years. It’s possible you won’t survive to reach that break-even point. If your health is poor, you may want to take that into consideration when you’re making your decision on when to start taking Social Security.
Other Factors in When to Start Taking Social Security
Besides health, there’s another reason why you might want to start benefits earlier. If you don’t have to spend your monthly benefits, you could invest them. Chances are you’ll get a much greater return than the amount your benefit increase when you wait. You should talk to a trusted financial adviser to craft a complete retirement strategy.
However, if you’re looking at taking Social Security to supplement what you earn from working, you may want to wait. If you’re earning more than a certain annual limit (currently $62,160), the government will reduce the amount of your benefit. One dollar in benefits is taken out for every $2 you earn. The year before you reach FRA, the reduction is $1 for every $3 earned. There is no reduction for working after you reach FRA, but you may have to pay taxes on a portion of your Social Security benefits.
Links
This Life Expectancy Calculator from the Social Security Administration can help with making your decision on when to start taking retirement benefits.
Use this link to apply for Social Security benefits online.
Lastly, you can learn more about our services here!
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