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When Should You Start Taking Social Security Benefits?

March 17, 2023 • | Curran Estate & Elder Law, PLLC
Should you retire now and begin collecting your benefits or hold off for a few more years?

You don’t need to wait until age 67 to start collecting Social Security benefits, even though the Full Retirement Age is currently 67. You could, if needed, start collecting benefits as early as age 62, although there are some downsides to such an early start, according to a recent article from CNET, “When Is the Best Time to Begin Collecting Social Security Benefits?”

When you start collecting Social Security could impact your finances for the rest of your life. While the big Cost of Living Adjustment (COLA) in 2023 added more cash to every benefit, you might want to know if this is a reason to start collecting benefits this year.

There are pros and cons, and the best solution requires an honest and thorough look at your own financial situation, including other sources of retirement income.

First, how are benefits calculated? The Social Security Administration uses your average monthly earnings from up to 35 years to calculate your “primary insurance amount” or the benefit you’d receive at FRA (Full Retirement Age). This includes income up to the “taxable maximum” amount, which is $160,200 for 2023.

After determining the number of years, the years with the highest earnings are chosen, taking inflation into account. The sum of those earnings, divided by the total number of months worked during those years leads to a final resulting average, rounded down to the next lower dollar amount.

Your earnings are then indexed, so future benefits are reflected in the current standard of living to help offset inflation. This “average indexed monthly earnings” number is then used to calculate your monthly benefit.

If you are a spouse or an ex-spouse of someone who has contributed to Social Security through taxes, you might be able to claim part of their benefits, either receiving the spousal share of their benefit or a payout based on your own work history, whichever amount is greater.

The earliest you can start taking benefits is age 62, although you’ll receive a smaller amount than if you wait until FRA. Every situation is different, so there’s no single “best age” for everyone. The questions to ask are these: when do you want to retire, and when can you afford to retire?

When you can afford to retire depends on more than the savings you have accumulated. It also depends upon the lifestyle you want and where you’ll live during retirement. You’ll also want to consider your health and longevity. If you are living with a chronic illness, you may choose to retire earlier and collect earlier. It’s a very individual decision.

If Social Security is the sole or majority income source to pay expenses during retirement, waiting to retire and claiming benefits at a later date is likely your best choice. You’ll receive more money each month and have more time to save for retirement.

If you choose to retire early, benefits will be reduced for each month before FRA. If you were, for example, born in 1960 or later and retire at age 62 with a retirement benefit of $1,000, your monthly payment will be reduced to $700—a 30% reduction.

On the other hand, that’s $700 you would otherwise not receive if you weren’t taking Social Security benefits. Therefore, you might benefit from collecting smaller payments over a longer period of time.

Retirees need to monitor their spending and withdrawal rates, so they don’t outlive assets. Reducing spending and forgoing costly expenses like travel, especially when markets are down or inflation is high, can help extend retirement savings.

Reference: CNET (Feb. 25, 2023) “When Is the Best Time to Begin Collecting Social Security Benefits?”

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