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Social Security: Patience May Help Boost Retirement Income

Deciding when to collect Social Security is a key part of planning for retirement. Learn how waiting to collect Social Security benefits could significantly increase your retirement income.

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4 min read
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Key Takeaways

  • Determine your potential payments if you wait to collect
  • Identify other income sources you can use before Social Security kicks in
  • Consider adjusting your portfolio to help generate more income in retirement

As you plan and prepare for retirement, one of the key things you have to decide is when to start collecting Social Security. Seems simple enough, but this decision actually requires careful consideration because it may impact how much you’ll receive throughout your retirement years. If you start collecting before age 70, your Social Security retirement benefits may be reduced. On the flip side, if you wait to collect, your monthly payments could be larger, which means you may have more money for expenses and the activities you enjoy. In any case, remember Social Security provides benefits for your life and may help reduce some of the risk of out-living your savings. As the probability of living a long life has increased, make sure you consider the impact of living more than 30 years in retirement.          

Here’s what you need to know to make a more informed decision.

Significance of Social Security Full Benefit Age 

For decades, people have associated collecting Social Security with turning age 65 because that’s when they could receive 100% of their Social Security retirement benefits. However, not surprisingly, the full retirement age, also known as the full benefit age, has been gradually increasing. For example, if you were born between 1943 and 1954, you’re not eligible to collect full benefits until age 66. And if you were born in 1960 or later, you have to be age 67. 

Based on this information, you might decide to keep working until you reach your full benefit age. Or you might consider adjusting your investment strategy to help generate more income if you want to retire sooner.

The Power of Patience 

The government offers an incentive to delay Social Security beyond your full benefit age. Each year you wait adds an additional 8% to your payment up to age 70, which could possibly increase your retirement income by a sizeable amount. The following example illustrates the potential impact of waiting, assuming a full benefit of $1,000 and full retirement age of 66.

Age Start Receiving Benefits

Benefit Rate

Social Security Payment

66

100%

$1,000

67

108%

$1,080

68

116%

$1,160

69

124%

$1,240

70 or later

132%

$1,320
For illustrative purposes only.

And the Social Security cost-of-living adjustment (COLA) is a percentage added to your payments so a larger initial payment receives a larger dollar amount in COLA. These larger payments might be helpful as you hit the later stages of retirement. That’s when many people have spent down their savings and need to rely more on Social Security to help cover their expenses. But remember, your Part B Medicare premiums are deducted automatically from your Social Security check so the actual amount you receive each month will be reduced by your premiums.    
 
Delaying Social Security past age 62 not only gives you a larger monthly payment, you'll also receive a larger total lifetime dollar amount if you live into your 80s. However, there is a potential trade-off to waiting; you might have to tap your retirement accounts in the interim. 

Downside to Starting Early

If you so choose, you can begin collecting Social Security at age 62, but you’ll receive 25% to 30% less based on your full retirement age. And this reduction is permanent. Assuming a full benefit of $1,000, here’s how your payments might be affected if you start collecting early: 

Full Retirement Age

Benefit Rate at Age 62

Social Security Payment at Age 62

66

75%

$750

67

70%

$700

For illustrative purposes only.

Of course, there’s nothing inherently wrong with starting early, especially if it’s out of necessity. In particular, if you're in poor health, it may not make sense to delay Social Security because you may not live long enough to reap the benefits of a later, higher lifetime payment. You just need to be aware of the ramifications and factor the reduced amount into your retirement planning.  

Personal Considerations

Besides looking at the different payment amounts, you’ll also want to take your personal situation into account. Waiting to collect Social Security may or may not make sense depending on your finances, pension benefits, health, ability to work, and any spousal benefits. Social Security is an important safety net to meet some of your primary needs and expenses in retirement. Treat the decision thoughtfully and with care. The goal is to pick the time frame that will best help you meet your needs, wants, and wishes in retirement. 

For additional support, visit the Social Security Administration website, ssa.gov, or schedule a meeting with a 
TD Ameritrade Financial Consultant who can help you create a retirement income plan for the future you envision.

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Christine Russell
By Christine Russell
Senior Manager, Retirement & Annuities, TD Ameritrade

Key Takeaways

  • Determine your potential payments if you wait to collect
  • Identify other income sources you can use before Social Security kicks in
  • Consider adjusting your portfolio to help generate more income in retirement

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