When to Start Social Security Benefits
By Elaine E. Bedel, CFP®
Course Section
A common question asked by those approaching retirement is when to begin receiving Social Security benefits. The decision depends on two factors. The first is when you plan to stop earning income and the second involves your thoughts on life expectancy.
Retirees can start receiving benefits from Social Security as early as age 62. However, the amount will be reduced from the amount expected at your full retirement age. To the surprise of some, age 65 is no longer the age at which full benefits are received.
The chart below shows the age at which you can receive full benefits. However, regardless of when you reach your full retirement benefit age, you can still receive a reduced benefit as early as age 62.
| Year of Birth | Minimum retirement age for full benefit |
|---|---|
| 1937 or earlier | 65 |
| 1938 | 65 and 20 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943 to 1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
No Earned Income Expected
If you are 62 years or older and no longer earn a regular paycheck,
you should consider applying for your Social Security. The amount
you receive each month will be lower if you start getting Social
Security before your full retirement age. The reduction is based
on the number of months prior to your full retirement date that you
start receiving benefits. For example, if you begin getting Social
Security when you turn 62 in 2007 (born in 1945) your benefit would
be reduced by 25% because you are starting benefits 48 months before
your full retirement age of 66.
Continued Employment and Social Security
If you decide to continue employment at any time from age 62 up
to your full retirement age, the decision to start your Social Security
retirement benefit will depend on the amount you plan to earn. You
can earn up to a specific dollar amount per year ($12,960 in 2007)
before your Social Security benefits are reduced by $1 for every
$2 earned over that amount. In the year you reach your full retirement
age, the earnings limit increases ($34,400 in 2007) and any benefits
received in the months prior to your birthday month, will be reduced
by $1 for every $3 of excess earnings. Beginning in the month that
you reach your full retirement age, you can have unlimited earned
income and still collect full Social Security benefits.
Breakeven Point
Experts say that if you live about 11 to 12 years beyond age 62,
you should get about the same total amount of money if you start
receiving the lower amount early or if you wait until your full retirement
age. Given this 11 to 12 year breakeven period, if you no longer
have earned income over the stated limit, but you decide to wait
until age 66, you need to expect to live to age 77 to make up for
the four years (age 62 to 66) that you received no monthly benefit.
Once you are over age 77, waiting to receive the larger amount will
begin to benefit you. However, if you die prior to age 77, you would
have been better off taking the lesser amount at age 62.
Annual Social Security Reports
Each year the Social Security Administration sends you a report
showing your recorded earnings by year and the monthly benefit that
you can expect if you retire at age 62, at your full retirement age,
or at age 70. The approximate benefit amount assumes that you continue
to work and earn at your current rate until the designated age. If
you stop working at age 62, the amount shown for your full retirement
age will not be the amount you would receive by waiting to start
your benefits to that age if you quit working at age 62. To get a
more precise estimate, you can use the calculator provided at the Social Security site and enter
zeros for the years leading up to your full retirement age.
Summary
Once you retire, calculate your personal breakeven point for beginning
to receive a reduced amount versus delaying your benefit until your
full retirement age. The closer you are to your full retirement date
when you stop working, the lower the number of years to breakeven.
Unfortunately, none of us has a crystal ball to tell us how long
we will be collecting Social Security, so your final decision may
not be based purely on the numbers.
Elaine Bedel, CFP®, is a personal financial planner with over 25 years of providing financial planning and investment management for executives, professionals, and entrepreneurs. She is the President and Owner of Bedel Financial Consulting and has served as Chair of both the Financial Planning Standards Board and Certified Financial Planner Board of Standards.
