Nearing Retirement

Text size: 

A A A
 

Social Security: How to decide when it's time

August 11, 2014

It's a question every American faces sooner or later: "When should I start taking Social Security?"

There's a lot riding on the answer. Collecting your Social Security benefits before the program's "full retirement age" (65 for those born before 1938, rising gradually to 66 for those born between 1943 and 1954, and rising again to 67 for those born in 1960 and later) is certainly appealing to many people, but there are definite financial advantages to waiting just a few years. The sooner you begin, generally speaking, the lower your monthly payment.

On the other hand, beginning at age 62—the earliest allowable starting point for normal retirement benefits—means you could collect a higher total amount over time … but only if you die before reaching your average life expectancy. Should you live into your 80s, 90s, or beyond, you stand to receive more money from Social Security over time by postponing your start.

Visit the Social Security website and estimate your monthly benefit »

Monthly Social Security benefit
(based on a hypothetical worker's "full retirement" benefit of $1,000 at age 66)

Age you start 62 63 64 65 66 67 68 69 70
Monthly benefit $750 $800 $866 $933 $1,000 $1,080 $1,160 $1,240 $1,320

Source: Social Security Administration.

Colleen Jaconetti"The great unknown, of course, is how long you're going to live," said Colleen Jaconetti, a senior analyst with Vanguard Investment Strategy Group. "That makes the best answer unavoidably a guessing game.

"According to the Social Security Administration, for those who reach age 65 this year, the median life expectancy is about age 84 for men and 86 for women," Ms. Jaconetti said. "That means about half of those reaching age 65 will live past those points. And planning for the possibility of a long retirement is even more important for married couples, because if you and your spouse live to age 65, the odds of at least one of you living to age 90 are fairly good."

How Social Security payments can change depending on when you start
(based on a hypothetical worker's "full retirement" benefit of $2,500 at age 67)

Age you start Monthly payment Total payments
by age 75
Total payments
by age 90
62 (earliest possible) $1,700 $265,200 $571,200
67 (full retirement age) $2,500 $240,000 $690,000
70 (latest possible) $3,100 $186,000 $744,000

Note: Total benefits received depend on the retiree's lifespan. Source: Vanguard.

How age and birth date affect your benefits

The chart below shows the percentage of the total allowable monthly Social Security benefit you could receive based on when you begin.

For example, if you were born in 1948, you'd reach your "full retirement age" of 66 in 2014. If you start taking Social Security this year, you'd be eligible for 100% of your benefits. But if you'd chosen to start at age 62, in 2010, you would only have received 75% of your benefits. Conversely, by waiting one extra year, to 2015, you'd receive 108% of your full benefit.

Birth year Full retirement age 62 63 64 65 66 67

Before 1938

65

80.0%

86.7%

93.3%

100.0%

106.5%

111.0%–
113.0%

1938

65 and 2 months

79.2%

85.6%

92.2%

98.9%

105.4%

111.9%

1939

65 and 4 months

78.3%

84.4%

91.1%

97.8%

104.7%

111.7%

1940

65 and 6 months

77.5%

83.3%

90.0%

96.7%

103.5%

110.5%

1941

65 and 8 months

76.7%

82.2%

88.9%

95.6%

102.5%

110.0%

1942

65 and 10 months

75.8%

81.1%

87.8%

94.4%

101.3%

108.8%

1943–54

66

75.0%

80.0%

86.7%

93.3%

100.0%

108.0%

1955

66 and 2 months

74.2%

79.2%

85.6%

92.2%

98.9%

106.7%

1956

66 and 4 months

73.3%

78.3%

84.4%

91.1%

97.8%

105.3%

1957

66 and 6 months

72.5%

77.5%

83.3%

90.0%

96.7%

104.0%

1958

66 and 8 months

71.7%

76.7%

82.2%

88.9%

95.6%

102.7%

1959

66 and 10 months

70.8%

75.8%

81.1%

87.8%

94.4%

101.3%

1960 and after

67

70.0%

75.0%

80.0%

86.7%

93.3%

100.0%

Source: American Academy of Actuaries.

What happens if I collect benefits while working?

If you decide to start collecting Social Security before you fully retire, you may forgo a portion of your total allowable benefit.

If you collect benefits …  And earn more than …  You'll forgo … 
Before full retirement age $15,480 in 2014* $1 in benefits for each $2 above the limit
In the year you reach full retirement age $41,400 in the months before you reach full retirement age, in 2014* $1 in benefits for each $3 above the limit
In the month you reach full retirement age No limit None

*Earnings include wages, self-employment income, commissions, and bonuses. They do not include investment earnings, pensions, and distributions from retirement plans. Dollar amounts are indexed annually. However, once you reach full retirement age, the Social Security Administration will recalculate your benefits to take into account any months in which your payments were reduced.

Other points to consider

Your decision is an individual one; there's no right answer for everyone. Here are a few general guidelines worth remembering:

  • Each year you delay taking benefits beyond the earliest possible starting point will boost your annual payout by as much as 8%.
  • For married couples, it's preferable that the higher earner start his or her benefits as late as possible. This is because the surviving spouse gets the higher of the two benefits, no matter who begins first.
  • A portion of your Social Security benefit may be taxable, depending on your income level.

"The amount that's taxable is based on a 'combined income' formula that includes just half of a person's Social Security benefit up to a certain income threshold," Ms. Jaconetti explained. "However, up to 85% of Social Security benefits are taxable for those with higher incomes."

If you have the resources to meet basic living expenses without taking full Social Security benefits, you may want to consider alternative strategies, such as "file and suspend," "restricted application" (called "free spousal benefit" by Social Security), or "reset" (called "request for withdrawal of application"). While complex, these strategies can increase lifetime benefits.

The Social Security Administration's website provides more information. The site also allows you to create an online account to view your projected benefits based on your salary history to date.

It's a good idea to speak with a professional financial advisor about your specific circumstances.

Notes:

  • Vanguard accepts no responsibility for content on ssa.gov or other third-party websites.
PrintComment | E‑mail | Share | Subscribe