Making the decision about when to collect Social Security retirement benefits is one that could have an impact on your financial security for the rest of your life. The decision is more complex than meets the eye and is dependent upon many moving parts that is unique to each person.
Early or Full Retirement Age? Depending upon your birthdate, the full retirement age (FRA) for Social Security is between 66 and 67 years old. According to the Social Security Administration, around three-fourths of the population start taking benefits before the full retirement age. Should you?
A worker may begin collecting benefits as early as age 62. However, the early monthly benefit amount can be as much as 25% less than the FRA benefit. This lower benefit is what you will receive for the rest of your life. While you may receive benefits sooner, you may actually receive less benefits over your entire lifetime than would by waiting until FRA.
Also, if you are under FRA and have earned income over the threshold ($14,640 in 2012), your early benefits are further reduced by $1 for every $2 above that threshold. Keep in mind, earned income is not just a paycheck from your job, but may also include your income from a side business or partnership interests. A common situation early benefits make sense is when a person anticipates having a shorter life span than the average retiree.
Wait Even Longer? Waiting even longer to collect benefits until the age of 70 can be especially beneficial for a worker in excellent health that is expected to live much longer than the average retiree. It may also be a good idea for someone with a spouse who did not work over the years and is much younger than the retiree. Benefits do not accrue beyond age 70, so there is no need to delay benefits beyond that age.
Break-Even Analysis. One of the methods our firm deploys to help clients understand the economics of when to collect Social Security is Break-Even Analysis. The analysis calculates the life expectancy age that it does not matter whether you choose early or FRA benefits. If you think you will live longer than the break-even age, then you wait until FRA to begin benefits. But, if you think you may have a shorter life span than the break-even age, then you opt for early benefits. Many times people worry unnecessarily about when to begin benefits. The calculation can help alleviate uncertainty by providing quantitative insights for you to pair with qualitative factors to make an informed decision.
If you want to learn more about how to optimize your Social Security benefits contact our office at 515-284-1011. We can help you sort through the complexity so you can make a decision that works for you.