Deciding the best time to begin collecting Social Security benefits is a critical financial decision that depends on various factors including your health, retirement plans, and long-term financial goals. While you can start receiving benefits as early as age 62, waiting until your full retirement age or even later can increase your monthly payments. Understanding the trade-offs and potential impact on your overall retirement strategy can help ensure you make the best choice for your financial future.
The rules around Social Security retirement age
Social Security benefits can be collected starting at age 62, but doing so results in a permanent reduction in the monthly payment. The full retirement age (FRA), which varies based on your birth year, is typically between 66 and 67. If you wait until after your FRA, benefits increase, with the maximum monthly payment reached at age 70. Before 62, you cannot access your Social Security contributions.
“Considering that one of the biggest retirement concerns people have is outliving their money, waiting to collect Social Security benefits begins to make a lot more sense than it might have in the past. Waiting to claim benefits can be a way of gaining a measure of protection against your risk of longevity,” says Ben Storey, director of Retirement Research and Insights at Bank of America.
Why you should postpone collecting your benefits
For many, the option to postpone collecting your Social Security benefits is not viable. due to financial needs or other life circumstances. While delaying benefits can lead to larger monthly payments, those who face immediate financial pressures may need to start receiving their benefits earlier, even if it means accepting a reduced monthly amount. For many beneficiaries who do not have other investment options, delaying Social Security is not possible.
However, if you can delay collecting your benefits, it is the best option in order to maximize the amount of money you will receive each month. “Imagine that at age 66 you’re entitled to an annual Social Security benefit of $10,000. If you wait a year to claim it, you’ll forgo the $10,000 for the first year, but the following year at age 67, you’ll receive an annual benefit of $10,800 or 8% more — an amount, by the way, that is adjusted for inflation, if any, each year for the rest of your life,” says Storey.
Financial planning is the key to ensuring the longevity of your retirement
Many Americans who receive Social Security rely on it completely to get them through retirement. However, the government is consistently telling individuals that Social Security should not be your sole plan for retirement. Experts recommend diversifying income sources through means such as personal savings, pensions, and investments to ensure a more secure and comfortable retirement. Relying only on Social Security can leave individuals vulnerable to inflation and rising costs-of-living, making it important to plan for additional financial support.
Starting to plan for your retirement as early as possible is a critical step to take as you enter the working world. The earlier you begin saving and investing, the more time your money has to grow through compound interest. This can significantly increase your retirement savings. Even small, consistent contributions can add up over decades, making it easier to build a nest egg that will support you when you’re no longer working. Early planning also provides flexibility to adjust your strategies as your financial situation and goals evolve.
Ultimately however, your unique retirement circumstance will play into your decision as to whether you delay claiming your benefits. Some of us will have higher expenses than others in retirement, particularly individuals who have higher healthcare costs. For some, it would make more sense to claim early than to wait.
