About 47% of current retirees begin drawing Social Security before their full retirement age, but the benefits are generally higher the longer one waits.
When it comes to Social Security and when you should start receiving it, the answer is clear: “it depends.” Deciding when you should start drawing benefits may involve a bit of probability theory, behavioral economics, and yeah, math.
Although Social Security offers the option to draw benefits as early as age 62, the penalty for doing so before your full retirement age (FRA) can be high. Still, some choose that path anyway. In fact, according to the Social Security Administration (SSA), 47% of current retirees have their retirement base as age 62 to 64, meaning they began drawing before their FRA. Why would they do that? And should you?
If you’ve ever filed your own tax return, you know that government policies and calculations can be complicated. Social Security is no exception. The basic FRA is 65 for those born before 1943 and scales up to age 67 for those born after 1960, as shown in the full retirement age chart on the SSA website. But know that, by some estimates, there are about 2,700 rules, exceptions, and contingencies covering things like spousal and survivor benefits, disabilities, working part-time while drawing benefits, and more.
How does the math work? You don’t need a PhD in quantitative analysis to figure it out, but perhaps a bit of high school algebra would help. Basically, if you retire less than 36 months before your FRA, your benefits will be reduced 5/9 of 1% for each month you begin early. So if you retire exactly three years (36 months) early, your benefits are reduced by 20% (5/9 x 0.01 x 36 = 0.20). For each additional month you retire early over and above the 36 months, your benefits will be reduced by an additional 5/12 of 1%, or 5% a year.
Don’t want to do the math? A Social Security retirement age chart is available on the SSA website. Once there, you can click on any birth year to see how much your monthly benefit will be reduced if you choose to retire early. The retirement age chart also shows the reduction in spousal benefits should you choose early retirement.
Good things come to those who wait. Just as drawing early comes at a price, delaying has its benefits. Pushing off your retirement beyond your FRA can make you eligible for an additional credit of up to 8% a year, up to three years, depending on your birth year. For example, a person born in 1960 would get 100% of her monthly benefit if she retired at age 67. If she waited until age 70, her monthly benefit would be 124%.
Once again, the SSA website can show you the potential benefit should you choose to wait. In fact, the site has 11 different calculators covering benefits, reductions, spouse benefits, life expectancy, and earnings tests.
Social Security retirement age chart example. Would you rather see the data in visual form? For 2019, the average monthly benefit is $1,461. Figure 1 shows how this amount would change depending on whether a person chose to begin earlier, later, or at his or her FRA. Remember: this is an example based on 2019 averages. Your monthly benefit will vary depending on your work history, birth year, and other factors. Plus, each year, the government uses Consumer Price Index data to calculate whether there will be a cost-of-living adjustment, or COLA, added to monthly benefits.
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If the benefits of retiring later are so pronounced, why are nearly half of current Social Security recipients considered “early retirees?” Here are a few considerations:
Deferring your Social Security benefits can have clear benefits, especially if you plan on a long and healthy life after reaching full retirement age. However, it may require fighting against some behavioral biases. It may also require an honest assessment about the number of healthy years you expect in retirement. Your spouse’s potential Social Security benefit should also be part of your decision-making. And then, you need to do the math (or at least check the Social Security retirement age chart).
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