The “Best Time” to Begin Collecting Social Security Retirement Benefits

By: David K. Carboni, Ph.D., CFP®

There’s an increasingly important financial decision nearly every employee must eventually    face: when's the best time to begin collecting Social Security retirement benefits?

Not long ago, "conventional wisdom" was to begin collecting Social Security retirement benefits as soon as you became eligible at age 62, and not wait for a full, unreduced benefit.”  The thinking was that so few people would live into their 80s that it wasn’t worth the wait for a larger benefit.

So what’s the real story? Our parents (born in 1937 or earlier) received 20% less for collecting at 62 than had they waited to collect at their full retirement age of 65.  Alan Greenspan extended Social Security’s full “unreduced benefit retirement age” for anyone born after 1937. Those born between 1943 and 1954 get 25% less at age 62 than had they waited to receive their full benefit at 66 (new full retirement age).  Those born in 1960 or later will receive 30% less at 62 and must wait until age 67 to receive an unreduced Social Security retirement benefit.  By doing the math, you’ll see that you must live 12 years beyond your full (unreduced) retirement age to justify waiting to collect your full benefit.  So what’s the smart move?

Most people approaching age 62 can't imagine living into their 80s, and so they opt to collect Social Security benefits early.  What they fail to realize is that a 65 year old has about an 80% chance of reaching age 80, with women even more likely to live well past 80. Therefore, from a “dollar and sense” standpoint, it’s better to wait to collect.  Not only will you get a substantially higher benefit, but your cost of living increases will be bigger because they’ll be based on a higher benefit amount

Selecting the best time to take Social Security is very important to ensure retirement income security, especially for lower and moderate income employees.  In fact, according to a recent study, an employee with a $40,000-a-year salary a spouse who’s been marginally employed, Social Security benefits are worth nearly $600,000 for that couple at retirement. But taking the benefit “early,” they can significantly reduce the life-time value of their benefits.  

There’s an even added advantage for waiting until age 70 to collect.  For each year you delay collecting Social Security from you full retirement age until age 70, your benefit will rise by 8%.  This increase is will mean not only higher life-time benefits, but your cost of living increases also will based on a higher benefit base (causing bigger increases).  Not bad in a low interest rate environment where to receive an 8% return you must take substantial investment risk. Likewise, this strategy will result in higher widow’s benefit for a surviving spouse.


Bottom line: the decision to opt for a permanently reduced Social Security benefit at age 62 can have disastrous long-term financial consequences for both male and female employees, but especially for women. Why women? Not only do women generally collect smaller Social Security checks than men because they have worked fewer years, but also because they live longer than men (a 65 year old woman has nearly an 85% chance of reaching age 80), women are more likely to feel the "pinch" of a permanently reduced check later in their lives.  So unless you're in poor health or have a great deal of income from other sources, seriously consider waiting to collect until you’re eligible for a full, unreduced Social Security retirement benefit.   

- 1/20/2015