Let Me Clarify
Deciding When to Collect Social Security

Deciding when to collect Social Security benefits can be important. In fact, according to a study released in 2021 by the Social Security Administration, Social Security benefits represent about 30% of the income of elderly individuals. That is huge! And keep in mind that is the average, meaning that many retirees will rely on Social Security to make up a much larger percentage of their income.

So, with this being such a crucial part of retirement planning, when is the best time to begin collecting? Age 62? At your Full Retirement Age (FRA)? At age 70?

Well…it depends!

Let’s start with the basics.

When can I begin collecting benefits?

For those eligible for Social Security retirement income, benefits can begin anywhere between ages 62 and 70. Within that range also falls your Full Retirement Age, or “FRA”, based on the year you were born. See the table below:

If you were born in: Your Full Retirement Age is:
1943-1954 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 and later 67

*Data source: Social Security Administration

Your FRA is an important starting point since it is the age you are entitled to begin collecting 100% of your Primary Insurance Amount, or “PIA”. This is the full amount of the calculation used to determine your Social Security income based on your historical earnings and SS taxes withheld.

Beginning benefits between age 62 and your FRA would result in a reduced initial benefit payout. For example, individuals born after 1960 would begin receiving 70% of their PIA amount if choosing to collect at the earliest age of 62.

On the other hand, delaying collection past FRA results in an 8% increase in benefits each year. For example, those same individuals born after 1960 are eligible to begin receiving 132% of their PIA amount if choosing to delay until the latest age of 70.

What factors impact when to collect?

Other income sources, life expectancy, and taxes are just a few of the individual variables that can have a significant impact on the decision of when to collect.

Other income sources: This impacts the decision in two main ways.

  1. Are you still working, or do you have enough fixed income sources (employment, pension, annuity payments, etc.) to cover current expenses? If so, then beginning collection at the earliest age isn’t necessary. Additionally, there are earnings limitations that could further reduce your SS income during the years prior to your FRA.
  2. If you are retired without enough fixed income sources to cover your expenses, what realistic investment returns do you expect? The alternative to collecting SS is taking distributions from retirement investments. Those that are conservative and/or lack confidence in their investments returning anywhere close to 8% could benefit from the guaranteed annual increase from delaying benefits. And those that may be aggressive and somehow expect to earn more that 8% could benefit from collecting benefits earlier, leaving their money invested longer.

Life expectancy: The basic idea is that those with shorter life expectancies might want to lean toward collecting earlier – collecting more from Social Security earlier on. On the other end of the spectrum, those with longer life expectancies might benefit from delaying Social Security – receiving the highest payout for a longer period. Of course, this is a complete guessing game without a crystal ball, but based on the math, a breakeven for Social Security benefits often falls around early 80’s for many individuals.

Taxes: Anywhere from 50 to 85% of Social Security benefits are considered taxable, depending on your overall income each year. As total income rises, the percentage of taxable benefits rises along with it. Couple this with increasing income tax brackets as you earn more, and it can be a double whammy. This can be a particularly big issue for those who are still working, don’t necessarily need to collect benefits, but choose too anyway. Although they may feel they are getting their own money back from the government, there’s a possibility that a larger chunk ends up going to Uncle Sam than had they waited until employment ends and overall income is lower.

The items above are only the tip of the iceberg when it comes to Social Security collection strategies. Like any other financial decision, I cannot stress enough the importance of evaluating how various collection ages impact your broader financial plan. Hopefully, this at least gives you a good starting point if you are close to retirement.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual.