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What Is The Best Age To Collect Social Security

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Social Security: What Is The Best Age To Begin Collecting

When Can I Retire and Collect Social Security? What’s The Best Age?

Have you ever wondered how the FICA tax information on your pay stub impacts your future retirement benefits?

FICA is a payroll tax that funds both Social Security and Medicare, amounting to a 7.65 percent contribution from each paycheck, an amount which your employer matches. It gets deducted from your first paycheck all the way up to the time you retire, when you can collect benefits.

But claiming Social Security benefits can be a tricky business.

There Is Such A Thing As Earning The Right To Claim Benefits Whenever You Want To

One of the greatest things about Social Security is that you’re not tied down to one specific filing age. Rather, you get a range of choices when it comes to signing up for benefits.

The earliest age you can claim Social Security is age 62. But you should know that you’re not entitled to your full monthly benefit based on your earnings history until you reach full retirement age , which kicks in at 66, 67, or somewhere in the middle, depending on your year of birth.

You also have the option to delay your Social Security filing past FRA and snag a higher monthly benefit for life. For each year you hold off, up until age 70, your benefits get an 8% boost.

It’s for this reason that filing at age 70 may hold some appeal. And for some beneficiaries, waiting to file is a very wise choice. But you may want to claim Social Security well ahead of age 70 if this particular scenario applies to you.

What If I Delay Taking My Benefits

If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit . For example, say you were born in 1955 and your full retirement age is 66 and 2 months. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by approximately two . This makes your benefit ~15% higher than the amount you would have received at age 66.

That higher baseline lasts for the rest of your retirement and serves as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesit’s not always possible to wait, particularly if you are in poor health or can’t afford to delaythe benefits of waiting can be significant.

If you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstancesyour Medicare coverage may be delayed and cost more if you do not sign up at age 65.

Effect of late retirement on benefits

1.Represents Full Retirement Age based on DOB Jan. 2, 1955

2.PIA = The primary insurance amount is the basis for benefits that are paid to an individual

To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70, assuming you continue to work and earn about the same amount until age 62, full retirement age, or age 70 before retiring. If you need a copy of your annual statement, you can request one from the Social Security Administration .

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When Should You Start Social Security

The Social Security Administration does not have a recommended age to start receiving benefits. The decision is entirely up to you. You’ll get a little less if you start early, or a bigger benefit if you wait until 70. You can calculate the difference on the SSA website. You may receive a bigger payout over your lifetime if you wait, but that might not be as important as receiving income now, especially if you can no longer work for health reasons. Ultimately, the right age depends on your financial situation, your work, and your health.

Before You Make Your Decision

What Is the Social Security Retirement Age?

There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:

  • If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
  • That there are other things to consider when making the decision about when to begin receiving your retirement benefits.

apply

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When Can You Begin To Claim Social Security Disability Insurance

Those who are blind or have a disability could have access to potentially two different programs if they meet the criteria.

Social Security Disability Insurance is available to those who are registered as disabled, and cant work due to their physical or mental disability that is expected to last for a year or more, or result in death. Recipients must satisfy certain work history requirements but family members can also be used to satisfy the requirements, which would be difficult for many to achieve who are born disabled.

There is also Supplemental Security Income which provides financial assistance for people with disabilities, along with seniors, who have a limited income. Most states have their own support programs to assist people on SSI benefits.

How Age Affects Your Social Security Benefit

The longer you wait to take benefits, the higher your monthly benefit will be, with 70 as the maximum age to delay benefits. So, deciding when to take your benefit is a trade-off between a lower benefit for a longer period of time versus a higher benefit for a shorter period of time.

Heres how it works:

Youre first eligible to start taking benefits at age 62, but at a reduced amount. Your benefit is reduced a little bit each month that you take it early, I wont get into the exact calculation here, but if you take your benefits at 62, the amount is reduced by 30% of your PIA if your full retirement age is 67.

So if you were eligible to receive $2,156, then at 62 your benefit would be $1,509. Ouch. But you do get benefits from age 6267, where they would have paid you zero during that time if you waited until 67 to start. But now that youve filed early, your benefits are reduced permanently through the rest of your life.

So theres a trade-off between applying early and applying late.

There is also an increased benefit for delaying after age 67. For each year from age 67 to 70, you get an increase in your benefit of 8% per year. So, if you wait until age 70 to start your benefits, and your benefit was $2,156, then your age 70 benefit is $2,673. Not bad.

Summary of how age affects your Social Security benefit:

  • Full benefit at your full retirement age
  • 30% reduction at age 62
  • 32% increase on full benefit at age 70

Heres a chart showing how age affects benefit:

Apply at age

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Collecting Social Security Before Or After Your Full Retirement Age

If you begin collecting Social Security at age 62 and your full retirement age is 66, the check you receive will be about one-quarter less than the amount you would have received at full retirement age. If you are the sole breadwinner in your household, your spouse could be negatively affected as well. If you begin collecting before your full retirement age, the amount of money your spouse would receive after your death decreases.

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What’s the Best Age to Claim Social Security 62, 66, or 70?

Storey: It often makes sense for the higher earnerâletâs say itâs the wifeâto wait until 66, or even 70, to claim benefits. Doing so increases her benefits throughout her lifetime and, should she die first, throughout the lifetime of her husband as well since his survivor benefit would step up to that of his deceased wife. If the earnings gap between the husband and wife is substantial, he might think about claiming his own reduced benefit at 62 if he has retired or has limited income, and then request a spousal adjustment once his wife claims Social Security.

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What Is The Best Age To Take Social Security

The age-old debate over what is the best age to take Social Security seems like it will never end.

Part of the reason is that there is no black-and-white answer. Like many financial computations, your own personal situation will determine what the right age for you is, even if its different from your friends, family members or those in the financial press.

The bottom line is there are pros and cons to taking Social Security at any age, and youll have to weigh what makes the most sense for you in terms of your financial security. Heres a look at three common times retirees take Social Security, along with the reasons they may or may not be the best choice for you.

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How Social Security Is Funded

Social Security is a pay as you go program. In other words, there is a tax on wages for those who are working, and this tax is supposed to cover the payments to those receiving benefits in retirement.

So, those who are working pay for those who are receiving benefits.

Heres how it works: most wage earners in the U.S. pay FICA taxes. The rate is 12.4% for Social Security and 2.9% for Medicare, for a total of 15.3% on wages. This tax is capped on wages that exceed the income wage base, $137,700 in 2020 .

For W-2 employees, the tax is split evenly between the employee and the employer, while self-employed persons are responsible for the full 15.3%. The funds collected through these taxes are then distributed as payments to those currently receiving Social Security benefits.

As boomers were working, they were paying more into Social Security than what was being paid out. This created a surplus which we call the Social Security trust fund. Now that boomers are retiring, we have the opposite situation. More money is going out than what is coming in, and the deficit is paid out of this trust fund. More on the trust fund later.

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The Best Age To Collect Social Security: A Disclaimer

Just like investing advice, theres no one size fits all answer to this question. Some people need to collect sooner and some can hold off living off savings until later.

While reading this article, find the advice that best fits your situation not the one you wish you were in. Thats the best way to determine your best age to collect social security.

Merrill: Ben We’re All Living Longer Does That Change How And When We Claim Social Security Benefits

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âConsidering that one of the biggest concerns people have is outliving their money, waiting to collect benefits begins to make a lot more sense.â

Ben Storey: Considering that one of the biggest retirement concerns people have is outliving their money, waiting to collect Social Security benefits begins to make a lot more sense than it might have in the past. Waiting to claim benefits can be a way of gaining a measure of protection against your risk of longevity.

As most people know, the longer you wait to begin taking benefits until age 70, the greater the monthly amount you receive. But thatâs especially significant should you live a very long life. And because market interest rates are still quite low today, allowing the government to keep your money longer could potentially provide a higher return than you could get from most fixed income investments.

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What If I Take Benefits Early

If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.

If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.

For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and 2 months you elect to start benefits at age 62, the reduced benefit calculation is based on 50 months. This means that the reduction for the first 36 months is 20% and 5.83% for the remaining 14 months. Overall, your benefits would be permanently reduced by 25.83%.

Effect of early retirement on benefits

1.Represents Full Retirement Age based on DOB Jan. 2, 1955

2.PIA = The primary insurance amount is the basis for benefits that are paid to an individual

You Want The Money Now

Even if you don’t need your benefits early to support yourself, you may have other reasons for wanting to take them as soon as possible. Some people, for example, are concerned that Social Security may be unable to meet all of its obligations in the future, so they might as well get theirs now. Others believe they could do better by collecting benefits and investing them, rather than leaving it in the government’s hands.

That said, you would have to be a skilled investor to beat the 6% to 8% guaranteed annual return on your money that Social Security offers to those who wait until full retirement age or later.

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An Advanced Claiming Strategy

If you or your spouse reached age 62 by the end of 2015, you qualify for a Social Security claiming strategy called restricted application.

Here’s how it works: The younger spouse claims Social Security benefits based on his or her own earnings record.

When the older spouse reaches full retirement age , he or she files a restricted application for spousal benefits only. At that point, both spouses are claiming benefits based on the younger spouse’s earnings record.

Then, at age 70, the older spouse claims benefits based on his or her own earnings record, which have increased to 132% of what that spouse would’ve been eligible for at FRA.

See how it works:Restricted application

How A Social Security Break

When to Retire & Collect Social Security? What’s the Best Age to Apply? 62 vs 70 vs 66

Figuring out the right time to start taking Social Security benefits isnt always a straightforward process. A Social Security break-even calculator can help you get some perspective on the numbers so you know what you stand to gain or lose by taking benefits earlier versus later.

Social Security break-even calculators help you find the best age to start taking retirement benefits. They do this by comparing your cumulative Social Security retirement benefits paid at age 62, your full retirement age and at age 70 and estimating how long it would take the benefits paid at age 70 to break even with benefits paid starting at age 62.

Heres a simple calculation to give you an idea of how a Social Security break-even calculator works. Say that you have the option to begin receiving $1,200 a month in benefits at age 62. Youd receive $1,700 in benefits if you wait until full retirement age at 66. Or you could receive $2,200 a month in benefits by delaying them until age 70.

The break-even point represents when the cumulative benefits even out. So if you wait until age 70 to start taking benefits, it would take you until age 79 to break even with the benefit amount youd receive if you started taking them at age 62. If you were to start receiving benefits at age 66, it would take you until age 75 to break even with the benefits youd receive if you started them at 62.

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What’s Full Retirement Age

Full retirement age is when you’re eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1955 or later, your full retirement age can be anywhere between age 66 and 2 monthsall the way up to age 67 for those born after 1959. If you were born before 1955, you’ve already reached age 66 and full retirement age.

Retirement ages for full Social Security benefits

If you were born in

Your full retirement age is

1954 or earlier

What A Social Security Break

In a nutshell, a Social Security break-even calculator can tell you when the best age is to start taking Social security benefits, in terms of how much money you could expect to receive over time. Going back to the previous example, lets assume that you track your benefit amounts over a 10-year, 20-year and 30-year period. Heres how your total benefits received would look over each of those periods, for all three starting points.

Your cumulative benefits after 10 years:

  • $144,000, starting at age 62
  • $122,400, starting at age 66
  • $52,800, starting at age 70

Your cumulative benefits after 20 years:

  • $288,000, starting at age 62
  • $326,400, starting at age 66
  • $316,800, starting at age 70

Your cumulative benefits after 30 years:

  • $432,000, starting at age 62
  • $530,400, starting at age 66
  • $580,800, starting at age 70

You can see that youd draw the most Social Security benefits in total if you wait until age 70 to start taking them, assuming you live to age 100. But that could be a big if when youre not in the best health.

What you have to keep in mind when using a Social Security break-even calculator is that the numbers are hypothetical. They dont take into things that could affect your ability to draw benefits or how far those benefits might go, such as:

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