Deciding when to start collecting Social Security is one of the most important financial decisions you’ll make for your retirement. Your choice affects not only the amount you receive each month but also the overall financial stability of your retirement. While you can begin claiming benefits as early as age 62, waiting until your full retirement age (FRA)—or even until age 70—can significantly increase your monthly payments.
Let’s look into the factors, trade-offs, and strategies that can help you decide the best time to claim your Social Security benefits.
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Social Security
The earliest you can start collecting Social Security benefits is age 62, but there’s a catch: claiming early results in a permanent reduction in your monthly payment. Your FRA, the age at which you’re entitled to your full benefit, depends on your birth year. For those born between 1943 and 1954, the FRA is 66. It gradually increases for later birth years, reaching 67 for those born in 1960 or later.
If you delay collecting benefits past your FRA, your monthly payment increases by about 8% per year until you reach age 70. This means waiting can result in significantly higher benefits over your lifetime, especially if you live a long life. However, you can’t access your benefits at all before age 62.
Delaying Benefits
Waiting to collect your Social Security benefits often makes financial sense if you can afford it. Delaying until FRA—or ideally, age 70—results in higher monthly payments for the rest of your life.
For example, if you’re entitled to a $10,000 annual benefit at age 66, waiting until 67 boosts it to $10,800, thanks to an 8% annual increase. This higher payment will also be adjusted for inflation every year.
According to Ben Storey, director of Retirement Research and Insights at Bank of America, delaying benefits can act as insurance against one of the biggest retirement risks: outliving your savings. With life expectancy increasing, larger Social Security payments provide financial stability in your later years.
However, not everyone can afford to delay. Immediate financial needs, medical expenses, or lack of alternative income sources may force some to claim benefits early, despite the reduced payments.
Retirement Income
The government has repeatedly emphasized that Social Security should not be your sole source of income in retirement. Relying solely on these benefits can leave you vulnerable to inflation and rising living costs, which can erode the purchasing power of your payments.
Experts recommend diversifying your income sources. This might include:
- Personal Savings: Start contributing to a retirement account like a 401(k) or IRA as early as possible.
- Pensions: If available, include them in your planning.
- Investments: Use compound interest to grow your savings over time.
Starting early is key. Even small, consistent contributions to retirement accounts can grow significantly over time thanks to compounding. For example, investing just $200 per month starting in your 20s can yield a nest egg worth hundreds of thousands of dollars by retirement age.
Planning early also gives you the flexibility to adjust your strategy as your financial situation evolves.
Claiming Early
While delaying benefits is often the best choice, there are cases where claiming early is smarter:
- Health Concerns: If you have a shorter life expectancy due to medical issues, claiming early can maximize the total benefits you receive.
- Financial Needs: If you don’t have sufficient savings or income to cover your expenses, early benefits may be necessary.
- Lower Lifetime Earnings: If you expect to earn below the Social Security taxable wage cap for most of your career, delaying may not yield as significant an increase in payments.
Ultimately, the decision depends on your unique circumstances, including your financial needs, health, and retirement goals.
Long-Term Security
Deciding when to claim Social Security is not just about monthly payments—it’s about securing your financial future. Delaying benefits where possible, diversifying income sources, and starting retirement planning early can all contribute to a more stable and comfortable retirement.
Whether you claim early or delay, your decision should align with your overall retirement strategy, ensuring you’re financially prepared for the years ahead.
FAQs
When can I start collecting Social Security?
You can begin at age 62, but payments will be reduced permanently.
What is full retirement age (FRA)?
FRA varies by birth year and is typically between ages 66 and 67.
How much do benefits increase if I delay?
Benefits increase by about 8% per year after FRA, up to age 70.
Should I delay Social Security benefits?
If financially feasible, delaying can maximize monthly payments.
Why diversify retirement income sources?
To reduce reliance on Social Security and protect against inflation.
