When Should I Take Social Security Retirement Benefits?

by Romy Brown on October 23, 2012

The Social Security Administration announced the annual Cost-of-Living Adjustment to benefits in pay status and adjustments to the wage base last week so we thought it a good time for a Social Security themed segment that we will write in multiple parts titled simply “When Should I Take Social Security Retirement Benefits”.

Deciding when to begin collecting Social Security Retirement benefits is a major decision as you approach retirement age even for those who may not rely upon the income to support themselves.

You are eligible to begin collecting retirement benefits as early as age 62 but with a consequence. The system has what is called a Full Retirement Age (FRA).

Year of Birth                       Full Retirement Age
1943-1954              =                         66
1955-1959              =                         66 + 2 months for every year after 1954
1960 or Later          =                         67

If you begin receiving benefits prior to your Full Retirement Age; you will receive a reduced amount of your benefit.

Age at Benefit Commencement                  % of Scheduled Benefit
(Assuming Age 66 FRA)
62                                    =                           75%
63                                    =                           80%
64                                    =                           86.67%
65                                    =                           93.33%

If you postpone receiving retirement benefits beyond your Full Retirement Age; you will receive an increased percentage of your scheduled benefit. The benefit is increased by 8% per year thanks to what are called Delayed Retirement Credits.

Age at Benefit Commencement                % of Scheduled Benefit
(Assuming Age 66 FRA)
67                                    =                          108%
68                                    =                           116%
69                                    =                           124%
70                                    =                           132%

Advice for the Single Person
The average break-even point for a single person between collecting reduced benefits at age 62 and waiting until age 66 to collect is about age 78. This means that life expectancy should come in to play in your decision. If you expect to live past age 78 then you should consider taking Social Security retirement benefits at Full Retirement Age as the value of the increased benefits will outweigh the cost of reduced cash flow in early years over the long term.

The average break-even point between collecting at Full Retirement Age and age 70 can also be determined based on life expectancy. If you believe, based on family longevity and current health, you will live past age 82; waiting until age 70 to collect benefits will provide a higher lifetime income.

There are many other factors in play when making your decision to begin receiving Social Security Retirement benefits including taxation of benefits, opportunity cost and whether or not you just plain need the cash flow.

We will level some advice for married couples and explore more complicated planning strategies in future blog posts.


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