For most of us, Social Security retirement benefits will be a significant source of income in our later years. But the amount you receive in benefits can vary, depending on when you begin collecting them.
Here are five key questions to consider as you think about when to start collecting Social Security:
1. When can you start receiving Social Security retirement benefits?
You can begin receiving Social Security retirement benefits as early as age 62 and as late as age 70.
2. Are there advantages or disadvantages of taking retirement benefits early?
The advantage of taking retirement benefits early is that you get an early start – at a younger age – collecting the money that you've been paying to the government since you started working. The downside to that, however, is that it causes a permanent reduction in your Social Security retirement benefit.
The decision to collect Social Security early will result in a monthly reduction – typically, a reduction of 20 to 30 percent of what you would have gotten if you had waited until full retirement age. In sum, the downside is you will be collecting less money each month.
The benefit, however, is that at some point – and there is a calculation to be made here – it's possible that if you collect early and live long enough, you could collect more money than if you delayed receiving Social Security and passed away before receiving it.
No one has a crystal ball which can tell them how long they are going to live. But with help from a financial adviser, you can get a better idea of when will be the optimal time for you to begin collecting Social Security benefits.
3. What are some of the advantages or disadvantages of postponing your benefits?
The greatest advantage of delaying to collect Social Security is that the monthly amount you receive is more.
Example. Let’s talk in terms of someone whose full retirement is age 67. By that, we mean that at age 67, they qualify to receive their full Social Security Benefit. But this person decides to delay collecting Social Security until age 70. The result is that they will receive 7 to 8 percent more in their monthly Social Security payment.
Thus, the greatest benefit to delaying taking Social Security is that it's more money in your pocket each month going forward. The downside, however, is that one has to live longer in order to balance out the benefit of getting the higher amount of money against the disadvantage of having years that one could have collected but did not.
4. What is the impact on a spouse or child?
The Social Security program has dependent benefits that spouses, minor children, and adult children with disabilities are able to utilize. Those benefits are directly related to the death, disability, or retirement of the insured person whose Social Security record will determine the benefits paid to her or his dependents.
With this in mind, it’s possible that the great benefit to early retirement for someone could also be a significant disadvantage for one of their dependents.
Example. I am age 62 and I decide that I want to start collecting Social Security. If I have an adult child with disabilities, my child will receive Social Security benefits of about 60 percent of what my Social Security benefit is. However, at the same time, if they're receiving government benefits that are based on income or assets, my decision to collect early could negatively impact them. For this reason, it is always important before making the decision about when you will begin collecting benefits to sit down and have a conversation with an attorney and with a financial adviser so that you can make a well-informed decision – especially if you have special circumstances like minor children, dependents, spouses, or adult children disabilities.
5. Are there other considerations regarding when to take benefits?
The primary consideration regarding when to start collecting Social Security benefits is how much money you need on a monthly basis.
What are your anticipated household expenses? Do you have other sources of income? Can you afford to delay collecting Social Security or do you need the money as soon as you can get it? If you live in a high property-tax state like New Jersey, you may want to start collecting Social Security as soon as humanly possible.
But if you have other sources of income or savings and don’t absolutely need the money, it’s best to sit down with a financial advisor and think it through. If there aren't those special factors that I mentioned – i.e., if you don’t have minor children to plan for or children living with disabilities – it's really going to boil down to the math.
You need to figure out how to maximize your benefit, and that’s a question of how long you are likely to live. You’ll want to think about the state of your health, how long your parents or other family members lived – that sort of thing – and based on that calculation and how long you can comfortably afford to not collect Social Security, you can determine whether to start collecting at your full retirement age or delaying for up to three years after that.
This post is for general informational purposes only. The information provided may or may not apply to you given the specifics of your situation. For a video presentation of this information, please view Social Security Retirement Age and Benefits. For more detailed information, please visit www.porzioplanning.com or contact us for a free 20 minute telephone consultation.
