Retirement age key to Social Security timing

What is the best time to begin taking Social Security benefits?

As you approach retirement, one of the key decisions you will face is the timing of when to begin receiving Social Security benefits. It is not an easy call, and the answer usually depends on your personal circumstances. Retiring early means more payments since you are starting to receive them sooner, but the monthly check you’ll receive for the remainder of your life will be smaller. 

Unfortunately, there is no “one-size-fits-all” answer to when you should start receiving Social Security benefits. The sliding scale used to calculate benefits, which pays a smaller monthly check if you retire “early” and more if you wait longer, depends on the year you were born. Your lifetime payout depends on how long you live. The first step is to visit www.ssa.gov/planners/calculators.html and find out when you’re entitled to full benefits, and how much those benefits are.

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Keeping your projected benefits in mind, there are three basic timing methods provided by the Social Security Administration (SSA) to consider for planning purposes: early retirement, normal or “full” retirement, or late retirement.

Early retirement. You are eligible to begin receiving Social Security retiree benefits as early as age 62. However, you will receive a reduced benefit if you retire before the normal age for receiving full benefits. For example, if you retire at 62, your benefit will be about 25% lower than what it would be if you wait until you reach your full retirement age.

Normal retirement. The age at which you can begin receiving full retirement benefits depends on when you were born. If you were born in 1948 or earlier, you are already eligible for full Social Security benefits. If you were born between 1943 and 1960,  the age for receiving full retirement benefits gradually increases to age 67. For those born between 1943 and 1954, which includes many baby boomers, the normal retirement age is 66.

Late retirement. You may choose to keep working beyond the normal retirement age to receive greater retirement benefits or delay your application for retirement benefits. If you are considering late retirement, keep in mind that each additional year you work adds another year of earnings to your Social Security record. Higher lifetime earnings may provide greater benefits to you in retirement. In addition, your benefit will increase automatically by a certain percentage from the time you reach your full retirement age until you start receiving your benefits or until you reach age 70. The percentage varies depending on your year of birth.

NEXT: Timing decision more complicated if you expect to claim benefits based on your spouse’s earning record

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The Social Security timing decision gets a bit complicated if you expect to claim benefits based on your spouse’s earning record. Typically, a spouse who has not worked, or one who has had low earnings, may receive up to one-half of the other spouse’s full benefit. If you are eligible to receive both your own retirement benefits and spousal benefits, your own benefits are paid out first. However, if your benefits as a spouse would exceed your own retirement benefits, you may receive a combination of benefits equaling the higher benefit.

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Once you have reached your full retirement age, you may choose to receive only your spouse’s benefits. In that case, you will continue accruing delayed retirement credits on your own Social Security record. Then you may file for benefits at a later date, up to age 70, and receive a higher monthly benefit based on the delayed retirement credits.

Other special rules may apply for widows and widowers, divorced spouses, and those entitled to receive disability benefits. You can find more information on these topics by visiting the SSA website at www.ssa.gov.

Ultimately, regardless of the option chosen, since payments are based on your projected expected life expectancy, which in reality is an unknown, your decision will likely have to be fully coordinated with your overall personal retirement and financial plan.

NEXT: Plan to spend more or less during retirement years?

Should I plan on spending more or less during my retirement years?

Spending levels typically are based on the three basic phases of the retirement years:

• an active phase, when the retiree is in good health and actively pursues travel and hobbies. This is typically the most expensive phase.

• a passive phase, when the retiree's energy starts to wane. Life starts to slow down and living expenses typically go down.

• a final phase, when medical conditions often result in subsistence living. This is typically a more expensive time than the passive phase due to increased medical expenses, but as long as proper medical arrangements have been made in advance, probably not as expensive as the active phase.

When planning for your retirement, keep in mind that the active stage is typically the most expensive and your living costs are likely to decrease as you age. This may substantially alter the amount you need for retirement.

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