For those of us ages 62 to 70, deciding when to start taking Social Security is a major issue.
You can start getting payments at age 62. And there's no benefit to waiting beyond 70.
But there is a benefit to waiting until age 70 — you will receive bigger payments. If you retire at age 70 in 2023, your maximum benefit would be $4,555 a month.
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A key element here is your full retirement age. Those born in 1955 and before have reached it. For those born in 1956-1959, that age is between 66 and 67. For those born in 1960 and afterward, it’s 67.
If you start taking your Social Security benefit before your full retirement age, your benefit drops permanently by about 0.56% for each month before that age.
If you start more than 36 months before your full retirement age, the benefit falls about 0.42% for each month before that age beyond 36 months.
Financial Sacrifices of Taking Social Security Early
A Charles Schwab research report offers an example.
“Let's assume you stop working at age 62. If your full retirement age is 67 and you elect to start benefits at age 62, the reduced benefit calculation is based on 60 months,” the report says.
“So, the reduction for the first 36 months is 20% (five-ninths of 1% times 36) and then another 10% (five-twelfths of 1% times 24) for the remaining 24 months. Overall, your benefits would be permanently reduced by 30%.”
After reaching your full retirement age, you get an additional 8% for each year that you delay starting your Social Security benefit until you’re 70. So if your full retirement age is 67 and you wait until 69 to take Social Security, your payment would increase by 16%.
A side note: You can get Social Security and work at the same time. But if you are younger than full retirement age and make more than a yearly earnings limit, your benefit will be reduced.
As you’ve probably surmised, it make sense to put off your payments until 70, unless you can’t afford to do so.
'More Than 90% Should Wait Until Age 70'
“We find that virtually all American workers age 45 to 62 should wait beyond age 65 to collect,” according to a report by three experts. “More than 90% should wait until age 70. Only 10.2% appear to do so.”
To be sure, waiting doesn’t work for everyone. If you have a low life expectancy, you might want to grab your benefits well before 70. Ditto if you have high spending needs, perhaps medical expenses, that you can’t fund through other sources.
Also, you may be worried about the financial security of Social Security. As of June 2022, the Social Security Trust Fund was expected to cover all promised benefits until 2035.
At that point, without action from Congress, benefits would have to be cut for all current and future beneficiaries to about 80% of scheduled benefits, the Schwab report explains.
“If you're skeptical about the future of Social Security or wary of potential changes, you may be tempted to start benefits early, assuming that it's better to have something than nothing,” the Schwab report pointed out.
But if you don’t have that concern, waiting could be advantageous.
