If you are eligible for Social Security benefits, you have options on when to collect them. You can collect them as early as age 62, at your designated retirement age (typically age 66–67, depending on your year of birth), or as late as age 70. If you choose to receive Social Security payments before reaching full retirement age, your monthly payments will be lower. Likewise, if you delay receiving your payments until after your full retirement age, they will be larger. There are pros and cons to taking Social Security early, at full retirement age, and later.
Contact Us to Speak with a
CERTIFIED FINANCIAL PLANNER™ professional.
Retirement Ages for Full Social Security Benefits
The age for full Social Security benefits varies based on your birth year. If you were born in 1960 or later, the full retirement age (FRA) is 67. For those born between 1943 and 1954, FRA is 66. The advantage of waiting until FRA is that you receive your full monthly benefit, whereas claiming earlier reduces your payments. As the American College of Trust and Estate Counsel (ACTEC) explains, if you delay taking benefits past your FRA, your monthly payout increases by 8% per year until age 70, significantly boosting lifetime income.
How to Decide When to Start Social Security Benefits
Deciding when to start depends on several personalized factors. Evaluate both financial needs and longevity expectations to optimize benefits. Here are critical areas to consider:
Evaluating Your Cash Needs and Retirement Goals
If you need immediate income to cover essential expenses, starting Social Security early could be necessary. Nevertheless, remember that payments are permanently reduced if you claim before your FRA. On the other hand, if you have sufficient retirement savings or a pension to support you, delaying Social Security can maximize your benefits. Make a financial assessment:
- Current Expenses: High costs in New York City, such as housing and healthcare, can be a deciding factor.
- Future Income Sources: Consider rental income, investments, or part-time work.
Considering Your Life Expectancy
Your expected longevity should weigh heavily in your decision. If you have a family history of long life or excellent personal health, waiting until FRA or beyond could be financially advantageous. Conversely, taking benefits earlier might make sense if you face health challenges.
- Statistical Note: According to the Social Security Administration, delaying benefits pays off if you live into your late 80s or 90s.
Importance of Marital Status in Social Security Decisions
Marital status has a considerable impact on how and when you claim benefits. Survival benefits come into play if you are married, which can be particularly valuable for a spouse who earns less. For instance, if you delay claiming, your surviving spouse may be eligible for higher benefits should you pass away.
- Spousal Strategies: The higher-earning spouse may benefit from delaying, while the lower-earning spouse claims earlier.
Impact of Employment Status on Social Security Benefits
Your employment status at retirement can also determine the optimal time to start Social Security. If you are still working and have yet to reach FRA, claiming benefits early could lead to a reduction due to the earnings limit, which adjusts annually. For 2024, the earnings limit is $21,240 for those below FRA. Earnings over this amount will result in benefits being withheld temporarily. Once you reach FRA, the limit disappears, and any withheld benefits are recalculated into your monthly payout.
Planning Tip: If your income is high, consider waiting to claim.
The Pros and Cons of Taking Social Security Benefits Early
If you opt to begin receiving Social Security payments before your full retirement age, your monthly benefits will be permanently reduced. For example, if you started receiving retirement benefits at age 62 and were born between 1943 and 1954, your benefits would decrease by 25%. If you were born after 1960, opting to receive Social Security benefits at age 62 would reduce your benefits by 30%.
Your age, the date you started receiving benefits, and the total amount you have contributed to the system over your lifetime determine your monthly Social Security benefits.
In addition to a permanent reduction in your monthly Social Security benefits, taking Social Security benefits early also reduces your cost-of-living adjustments because your base benefit amount is reduced.
People are more likely to choose to start receiving their Social Security benefits early when unemployment and recession rates are higher. One of the biggest benefits of receiving Social Security early is access to your funds. If you need or want your money now, taking Social Security before full retirement age can be a good option.
Health issues, or the belief that you will not be able to fully collect all of your Social Security benefits, is another common reason for collecting Social Security early. Your financial advisor can help you calculate your breakeven age. It typically takes 12 to 14 years beyond your claim date to receive the same number of dollars as you would if you started claiming at age 62.
If you have health issues or current financial needs, taking Social Security early is a good option, especially if you do not have to worry about the potential impact of reduced Social Security payments on your surviving spouse.
The Pros and Cons of Taking Social Security Benefits Late
If you choose to continue working past your full retirement age or stop working but delay drawing your Social Security benefits, you can increase your benefits. Each extra year that you work adds to your Social Security record. Higher lifetime earnings can result in higher Social Security benefits when you retire.
For each year you wait to receive Social Security benefits beyond your full retirement age, your benefits will increase by 8% per year until you reach age 70. A higher base Social Security payment also increases your cost-of-living adjustment.
If you delay receiving benefits until Social Security’s full retirement age and don’t live to the breakeven age, you will receive fewer total benefits over your lifetime.
Even if you delay retirement, don’t forget to sign up for Medicare three months before your 65th birthday to avoid any surcharges.
Social Security and Taxes
Social Security benefits can be taxable, depending on your income level. While the state does not tax Social Security benefits in New York, federal taxes may apply. If your combined income (including wages, dividends, and Social Security) exceeds $25,000 for single filers or $32,000 for joint filers, up to 85% of your benefits could be taxed. Careful planning can help reduce your tax liability. Investopedia emphasizes the importance of understanding your tax situation, especially in states with high living costs.
Can My Children Inherit My Social Security Benefits?
No, children cannot inherit Social Security retirement benefits. However, minor or disabled children may be eligible to receive benefits based on a parent’s work record. These benefits are typically available until the child turns 18 or 19 if still in high school. Additionally, if you pass away, survivor benefits may be available for your children.
What is the Social Security Leveling Option?
If you choose to retire before becoming eligible for Social Security benefits, some pension plans will offer a Social Security leveling option. This option will increase your pension payments from the time you retire until you are eligible for Social Security at age 62 or full retirement age. Once you begin receiving Social Security, the amount you receive from Social Security will then permanently reduce your pension benefit.
The Social Security leveling option helps maintain a steady retirement income throughout retirement. When evaluating this option, you’ll need to take into account cost-of-living adjustments, life expectancy, and other income sources.
To qualify for Social Security leveling, you must be eligible to receive benefits from your employer’s pension plan, and you must provide your employer with an estimate of your projected Social Security benefits.
While Social Security payments were not intended to fully replace your income in retirement, they can supplement your other income streams. Depending on your current health and income stream, you may elect to receive Social Security benefits early, at full retirement age, or late. Each option has advantages and disadvantages to consider.
Choosing when you receive Social Security benefits does not have to be a one-time decision. Once you are eligible, you can claim your benefits at any time. Talk with your financial advisor to discuss the potential implications of electing to receive your Social Security benefits early or late.
Get Started on Your Social Security Planning Today
Begin planning early to make well-informed Social Security decisions. It can be beneficial to Work with a wealth manager who understands the unique financial landscape of New York City. Frame Wealth Management can help you navigate Social Security options while considering your total retirement strategy. To discuss your retirement needs, call us at (866) 762-4518 or visit us at 1407 Broadway, Suite 4002, New York, NY 10018.
