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

     An increasingly important financial decision nearly every person 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, un-reduced 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 “un-reduced 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 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?

    Many 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. For a $120,000 a year salaried individual, her benefit is worth well over a million dollars. Therefore, if your health prospects are better than average, you’re better off waiting to collect. There are a few exceptions that could justify taking benefits early. First, if your health is poor and your unlikely to live long enough to benefit from waiting. Second, you desperately need the income. And third, (and most people will need help calculating whether this option is best), it renders other family members eligible to collect ancillary benefits if you are collecting (spouses, eligible children, etc.).

   There’s an added advantage if you wait until age 70 to collect. For each year you delay collecting Social Security from your full retirement age until age 70, your benefit rises by 8%. To receive an 8% return you must take substantial investment risk. Also, you will receive higher annual cost of living increases because they are based on the amount you are collecting. Likewise, this strategy will usually result in a higher widow(er)’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, especially for women. Why women? Not only do women generally collect smaller Social Security checks than men because they have worked fewer years and have had lower salaries. Women likewise live longer than men (a 65-year-old woman has a 50% chance of reaching age 89, while for a man at 65, they have a 50% of reaching age 86). Thus, women are more likely to feel the “pinch” of a permanently reduced check. So, unless you’re in poor health, are desperate for income, or have more than enough income from other sources to meet your income needs, consider waiting until you’re for a full, un-reduced Social Security retirement benefit at age 70.


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