Individuals can start collecting social security benefits as early as 62 years old or as late as 70 years old. Full retirement age depends on when you were born. If your birth years were between 1943 and 1954, your full retirement age is 66 years old. The later full retirement age breaks down as the following:
- 1954 to 1959: full retirement age is 66 years old plus two months
- 1960 or later: full retirement age is 67
The amount of monthly benefits depends on your age and earnings history. For example, if you start collecting your benefits early, you receive less money. The Social Security Administration (SSA) bases payments of the number of months you received your money prior to reaching full retirement age. It also depends on age. The SSA uses age to set a maximum reduction. For someone turning 62 years old in 2013, the maximum reduction is 25%. An individual born after 1959 will receive a 30% reduction. In other words, the amount that a person would have received at 70 years old is reduced by 30%, if he or she takes benefits early. Individuals born after 1943 receive a bonus of 8% for waiting until full retirement age.
The difference between accepting the money now or later is the size of the checks. For instance, an individual who waits until 70 years old may receive fewer checks, but will receive more money. However, there are certain situations where it is better to take benefits earlier rather than later. These include:
- Your financial situation: Does the individual need the money now because of lost income, lost job, or lack of employment opportunities?
- Overall health: This one is tough. The average age at death for Americans is typically the mid-80s. Do you expect to live into your 80s or 90s? Look at family history such as parents and grandparents ages at death for an indication.
- Work: Does you plan to continue working? If you plan to keep working it may be a reason to delay benefits until full retirement age.
- Marital status: Married men and single men and women should wait until full retirement age, if they can so they can have more money. Married women, if their husbands have a higher income, should start their benefits early. If her husband dies years after she takes her benefits, then she can switch to take his higher benefits.
- High earner: Individuals who are in a higher federal income tax bracket such as 25% or higher may think about waiting. Taking benefits early for a high income earner may make 85% of your social security taxable income.
The SSA has a retirement estimator for anyone trying to decide whether or not to take benefits early. The calculator is only an estimate. The majority of people try to wait until they reach full retirement age to collect their benefits. However, if life throws you a curve ball such as poor health or unemployment, it may be an indication to take benefits early.
