You've probably spent most of your working years diligently saving for retirement and putting away a small percentage of every paycheck to secure your future financial stability. But like millions of Americans, you might be concerned with whether you've saved enough to live comfortably in retirement.
Social Security could help supplement your retirement income, but the big question might be: When will you start collecting benefits? In 2017, the Social Security Administration (SSA) announced changes to the full retirement age, and these changes could affect the monthly benefits older Americans receive from the program.
If you're unsure about when to start collecting benefits, learning more about Social Security and the key benefit ages could help you decide what could be best for your situation.
Understanding Social Security
Before we look at the benefit ages, it's important to understand how Social Security works. Full retirement age is the age when you become eligible to receive full Social Security benefits, but this age varies depending on your birth year. If you were born 1937 or earlier, for example, your full retirement age is 65. If you were born between 1943 and 1954, your full retirement age would be 66. And those born after 1960 have a full retirement age of 67.
Overall, increased life expectancy is largely driving these changes. By increasing full retirement age, the hope is people will work a little longer, which could generate more tax revenue to fund the entire system. If you start your benefits early, they will be reduced based on the number of months for which you receive benefits before your full retirement age.
Aside from when you decide to collect Social Security, your monthly benefit is also determined using a calculation of your covered lifetime earnings and your average monthly earnings during your highest-earning years over a 35-year period. You could use the SSA's retirement estimator to get a better idea of what your monthly benefit will be when you reach full retirement age. Notable exceptions to the types of wages covered by Social Security include earnings from certain state and local governments and from railroads.
Collecting at Age 62
The earliest you can start collecting Social Security is age 62. However, starting to collect before your full retirement age will reduce your monthly benefit by a fraction of a percent for each month you collect before your full retirement age. Generally, the longer you wait to collect Social Security (subject to the restrictions noted below), the higher your monthly benefit will be. Depending on your situation, you might want to weigh your options before applying for the early retirement benefit.
Collecting at Full Retirement Age
If you begin to collect Social Security at your full retirement age, you'll receive 100 percent of your benefits. Until the 2017 announcement from the SSA, the full retirement age was set at age 66 — but now that's changed. Full retirement age has increased anywhere from 2 months to a full year, depending on your date of birth.
Waiting until age 67 rather than 66 to collect Social Security might not seem like a big difference, but if you planned to retire at age 65 — or earlier — and withdraw from your retirement savings, you'll have to wait longer for this additional source of income.
Collecting at Age 70
Did you know it's possible to intentionally delay benefits? If you delay collecting benefits after your full retirement age, you could get a higher monthly benefit when you start. You could take advantage of delayed retirement benefits until age 70. Once you hit that mark, your monthly benefit stops increasing even if you continue to delay taking benefits.
If you were born between 1943 and 1954 and your full retirement age is 66, and you start receiving retirement benefits at age 70, you'll get 132 percent of the monthly benefit because you delayed receiving benefits for 48 months. For example, if you were set to receive $1,000 per month in Social Security at full retirement age, that amount would increase to $1,320 if you start collecting at age 70. Generating more monthly income in retirement is an obvious benefit of delaying Social Security, but the one drawback is the wait. You may need to dip into your retirement savings during this time — and not everyone is in a position to do this.
More than 65 million Americans currently receive Social Security, but the age when you decide to join the ranks is a personal decision that involves several considerations: How much have you saved for retirement? What are your current expenses? And how long do you intend to keep working?
There's also health insurance to think about: Remember that Medicare usually starts when you reach age 65. The Social Security Administration recommends that if you decide to delay starting your benefits you should contact them about three months before you turn 65 to inquire about applying for Medicare.
You've worked tirelessly to secure your future and — after all that effort — you're entitled to Social Security. Whether you decide to take it at age 62, age 70 or anywhere in between, your benefit could help you supplement your income in retirement and enjoy everything your golden years have to offer.