What Age Should You Start Collecting Social Security?

Are you approaching retirement age and wondering when the optimal time is to start collecting Social Security benefits? You're not alone. Deciding when to take Social Security is one of the most important retirement planning choices you will make.

In this comprehensive guide, we'll break down everything you need to know to help you determine the right Social Security claiming strategy for your unique situation. We'll cover:

• How your Social Security benefit is calculated
• The pros and cons of taking Social Security early vs. late
• Key factors to consider like your health, life expectancy, and retirement goals
• How your choice impacts spousal and survivor benefits 
• How Social Security fits into your overall retirement income plan

By the end, you'll be armed with the knowledge you need to make a confident, informed decision about this critical piece of your retirement puzzle. Let's dive in!

How Your Social Security Benefit is Calculated

To understand when you should take Social Security, it's important to first know how your benefit is calculated. Your Social Security retirement benefit is based on your lifetime earnings history.

The Social Security Administration (SSA) uses a formula to determine your Primary Insurance Amount (PIA), which is the benefit you'd get at your Full Retirement Age (FRA). FRA is 66 for people born between 1943-1954, increases gradually to 67 for those born from 1955-1959, and is 67 for anyone born in 1960 or later.

Here's an overview of how your PIA is calculated:

1. Your earnings for each year up to the Social Security taxable maximum are adjusted for inflation.
2. Your highest 35 years of inflation-adjusted earnings are averaged together and divided by 12 to get your Average Indexed Monthly Earnings (AIME).
3. Specific percentages called "bend points" are applied to your AIME to calculate your PIA. For 2023, the bend point formula is:

• 90% of the first $1,115 of your AIME, plus
• 32% of your AIME between $1,115 and $6,721, plus 
• 15% of your AIME over $6,721

Let's look at an example. Say your AIME based on your work history is $6,500. Your PIA would be calculated as:

• 90% of the first $1,115 = $1,003.50
• 32% of the amount between $1,115 to $6,500 ($5,385) = $1,723.20  
• 15% of the amount over $6,721 (in this case $0) = $0
• Total PIA = $2,726.70

So in this scenario, your full Social Security benefit at your FRA would be $2,726.70 per month. But you don't have to wait until your FRA to claim benefits. You have the option to start as early as age 62 or delay up until age 70. The age you start has a big impact on your benefit amount.

Taking Social Security Early vs. Late

You can begin collecting Social Security retirement benefits as early as age 62 or as late as age 70. Your FRA serves as the benchmark - if you claim before it, your benefit is reduced and if you claim after, it's increased.

Claiming Social Security Before Your FRA

If you start benefits before your FRA, your monthly payment will be reduced based on how many months you have until your FRA. The reduction is 5/9 of 1% for each month up to 36 months before your FRA, then 5/12 of 1% beyond 36 months.

For example, if your FRA is 67 and you claim at:

• Age 62: Your benefit would be reduced by 30%
• Age 63: It would be reduced by 25%
• Age 64: It would be reduced by 20%
• Age 65: It would be reduced by 13.3%
• Age 66: It would be reduced by 6.7%

These reductions are permanent. If you start collecting at a reduced rate, your benefit will not increase to 100% when you reach FRA.

Delaying Social Security Past Your FRA

For every month you postpone taking Social Security past your FRA, you earn "delayed retirement credits" that increase your benefit by 2/3 of 1% per month. This works out to an 8% annual increase for each year you wait.

For example, if your FRA is 67 and you delay benefits until:

• Age 68: Your benefit would be 108% of your PIA
• Age 69: Your benefit would be 116% of your PIA  
• Age 70: Your benefit would be 124% of your PIA

You can't earn delayed retirement credits past age 70, so there's no benefit to waiting beyond then.

Here's how the age you start collecting impacts benefits for FRA of both 66 and 67:

So when should you claim? There's no universal "right" answer. It depends on a variety of personal factors. Let's look at some of the key considerations.

Factors to Consider When Deciding When to Claim

There are several important things to think through when choosing your Social Security claiming age:

Your Health and Life Expectancy

One of the biggest factors in deciding when to take Social Security is how long you expect to live. If you're in good health and have a family history of longevity, delaying benefits to get a larger check each month could make sense. But if you have health issues or reason to believe you may not live as long, starting earlier can be smart.

Here's why. Let's say your PIA is $2,500 per month at your FRA of 67. If you claim at 62, you'd get $1,750 per month for life (a 30% reduction). If you delay to 70, you'd get $3,100 per month for life (a 24% increase). The breakeven point where total benefits even out between claiming at 62 vs. 70 is around age 80-82.

So if you think there's a good chance you'll live well into your 80s or beyond, postponing benefits can net you more money over your lifetime. But if you don't expect to live that long, you may be better off taking benefits earlier, even at a reduced monthly amount.

Of course, none of us knows exactly how long we'll live. And there are certainly other important factors to weigh beyond maximizing your lifetime payout (which we'll get to). But your health and longevity prospects are a key piece of the puzzle.

Your Retirement Budget and Income Needs

Another critical consideration is your retirement budget. Do you have enough income from other sources like pensions, savings, and investments to cover your expenses, or will you be relying heavily on Social Security? If you'll need your benefits to make ends meet, starting earlier might be necessary.

On the flip side, if you have sufficient income and can afford to postpone taking benefits, doing so will boost your monthly Social Security check and may ultimately give you more financial flexibility down the road.

Delaying can be especially beneficial if you think you may have high spending needs later in retirement, perhaps due to increasing health and long-term care costs.

A financial advisor can help you map out different Social Security claiming scenarios within the context of your overall retirement income plan to determine what makes the most sense for your situation.

Your Employment Plans

Do you plan to keep working past age 62? If so, think carefully before taking Social Security benefits.

If you start collecting before your FRA while still working, you'll be subject to the Social Security earnings test. In 2023, if you're under FRA for the full year, $1 in benefits will be withheld for every $2 you earn above $21,240. In the year you reach FRA, $1 in benefits will be withheld for every $3 earned above $56,520 in the months before your birthday month. Once you hit FRA, the earnings test disappears.

Benefits withheld under the earnings test aren't lost forever - at your FRA, your benefit will be recalculated to account for the months benefits were withheld, resulting in a higher benefit.

But it could take many years to recoup lost benefits, and in the meantime, you've permanently locked in a lower benefit. As a general rule of thumb, if you plan to keep working, it often pays to wait until at least your FRA to start Social Security.

Spousal and Survivor Benefits

When deciding when to claim benefits, married couples should consider how their choice impacts both their own benefit and their spouse's benefits. Timing can significantly affect the spouse's benefit both while you're alive and after you pass away.

When it comes to spousal benefits (benefits your spouse is entitled to based on your work record):

• Your spouse can claim spousal benefits as early as 62, but their benefit will be reduced for taking it before their FRA. At their FRA, the max spousal benefit is 50% of your PIA.
• Your spouse can't claim a spousal benefit until you file for your own benefit. But if you file early, that permanently reduces both your own benefit and your spouse's spousal benefit. 
• Your claiming decision impacts your spouse's survivor benefit (the benefit they'd receive after your death). The survivor benefit is up to 100% of your benefit amount - so if you claim early, you're also locking in a lower survivor benefit for your spouse.
• The higher earning spouse usually has a bigger impact on benefits, so they often come out ahead delaying.

An example can help illustrate. Let's say Jake's PIA is $2,500 and his wife Anna's is $1,500. If Jake claims at 62, his benefit is reduced to $1,750. When Anna reaches her FRA, the most she can get as a spousal benefit is $875 (50% of Jake's $1,750 benefit).

Later, if Jake dies first, the most Anna can get as a survivor benefit is $1,750. But if Jake had delayed his benefit to age 70 and received $3,100, Anna would be eligible for a max $1,550 spousal benefit and $3,100 survivor benefit. In this scenario, Jake's decision to delay would substantially increase Anna's benefits, both while he's alive and after his death.

The best claiming strategy for married couples depends on factors like the age and health of each spouse, PIA amounts, and current and future income needs. Couples should explore how different claiming choices affect their joint lifetime benefits.

How Social Security Fits Into Your Overall Retirement Plan

Finally, it's crucial to look at Social Security in the context of your comprehensive retirement plan. Social Security is just one piece of the retirement income puzzle. How and when you claim should align with your broader financial picture, goals, and risk factors. A few key planning points:

•  Filling Your Income Gap: How much income will you need to draw from investments and savings to fill the gap between Social Security and your spending needs? Taking benefits later means needing more income from other sources early in retirement.
• Minimizing Sequence of Return Risk: Poor market returns in the first decade of retirement can disproportionately impact your portfolio's longevity, since you're selling investments at depressed prices. Having Social Security to cover more of your expenses early on means you may need to tap your portfolio less, reducing this "sequence risk."
• Tax Planning: Social Security benefits can be taxable, depending on your income. Up to 85% of benefits may be taxed if your "combined income" (adjusted gross income + nontaxable interest + 1/2 of Social Security benefits) exceeds $25,000 for single filers or $32,000 for joint filers. Required minimum distributions (RMDs) from retirement accounts can also impact Social Security taxation, so coordinate your claiming and withdrawal strategies.
• Life Expectancy and Longevity Risk: We touched on this above, but it bears repeating - the longer you expect to live, the more beneficial it usually is to delay Social Security. Waiting locks in a higher guaranteed income stream that can help safeguard against outliving your money.

Everyone's retirement situation is unique. There's no universal "optimal" age to take Social Security. The right choice for you depends on your health, marital status, retirement budget, other income sources, and planning priorities.

If you're unsure how Social Security fits into your plan, consider consulting a financial advisor who specializes in retirement income planning. An advisor can help you analyze different Social Security claiming strategies and identify the approach that best aligns with your big picture goals.

HOW TO FIND YOUR PROJECTED SOCIAL SECURITY BENEFITS

It is a good idea to start understanding and planning your Social Security benefits prior to retirement. Your first step is to see how much money that you are projected to get for your full retirement age. There are currently two ways that you can find your full retirement benefits.

• Read your annual SSA-1099 statement - Every year, you receive your 1099 statement from Social Security. This letter will tell you how much work credits you have accumulated and how much your estimated benefits will be at full retirement. This statement is usually sent to you in June of each year. 
• Register your online account at ssa.gov - If you want to get your projected Social Security benefits information right now, then you can register an account at the official Social Security website. After you register, you can access your online account regularly. 

You can also use the Social Security Quick Calculator to get an estimate of your benefits. This calculator allows you to adjust certain variables such as your retirement age and your earnings to see your projected benefits in today’s dollars or inflated dollars at your retirement age.

The Bottom Line on When to Take Social Security

Deciding when to claim Social Security benefits is a critical choice that can have a lasting impact on your retirement security and lifestyle. It's not a decision to take lightly, and there's no "one size fits all" answer.

As you weigh your options, remember these key takeaways:

• Your Social Security benefit is based on your 35 highest earning years. The earlier you claim before your FRA, the more your benefit is reduced. Waiting until after FRA yields a higher benefit.
• Key factors in your claiming choice include your health, life expectancy, retirement budget, income needs, work plans, and spousal benefits.
• For married couples, timing claims carefully is important, since the higher earner's choice significantly impacts survivor benefits.
• Consider Social Security within your overall financial and retirement income plan. How and when you claim should support your broader goals.
• If you're unsure of the right claiming strategy, consult with a financial professional to evaluate your options.

Armed with the right information and perspective, you can make an empowered choice about when to take Social Security benefits - a choice that supports the retirement life you envision.

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