When Should You Consider Taking Social Security Retirement Benefits?

Friday, July 11 at 09:50 AM
Category: Personal Finance

The answer to that question is not necessarily simple. 

There are several factors to consider:

  1. What is your age?
  2. Do you plan to continue to work?
  3. How badly do you need or want the monthly benefits?
  4. How long do you expect to live?

The first two questions are simple. The third question probably depends on your personal financial situation. The fourth question probably does not have an answer.

The Basics
Your Social Security retirement benefits are based on your earnings history (highest 35 years’ earnings) and assume you begin to receive benefits at your full retirement age. You can begin taking retirement benefits at age 62, but the amount you receive will be reduced. Delaying taking benefits until age 70 will increase the benefit levels.

For 2014, the average monthly benefit for all workers is about $1,300, and the maximum benefit based on the highest earnings is about $2,650. Benefits can increase annually based on cost-of-living adjustments that have averaged about 2.5 percent over the past 10 years.

Full Retirement Age
Full retirement age is between 65 and 67, depending on the year you were born.

Consider Your Continuing Employment Plans
The impact of working between age 62 and full retirement age is divided into two segments. For calendar years before you reach full retirement age, your annual Social Security benefits will be reduced by $1 for every $2 you earn above $15,480. For the portion of the calendar year you reach full retirement age, the reduction is $1 for every $3 you earn above $41,400. For high earners, this would significantly reduce or eliminate the Social Security benefits while continuing to work.

Once you reach full retirement age, there is an adjustment in calculating the length of early retirement to reflect months when benefits were withheld. However, the actual reduction in benefits due to working is never recovered.

Impact of Taking Benefits Before or After Full Retirement Age
If you elect to take benefits before reaching full retirement age, the reduction is 5/9 of 1 percent for each month for the first 36 months of early retirement and 5/12 of 1 percent for months 37 to 60 of early retirement.

If you delay taking benefits until after full retirement age, there is an 8 percent increase for each year you delay if you were born in 1943 or later. There are smaller increases if you were born before 1943.

Benefit adjustment for early or delayed beginning of benefits.

Another way to look at this is to consider what the total benefits would be over your lifetime based on when you started receiving the benefits. This chart assumes a full retirement age of 66 and a monthly benefit of $1,000 at full retirement age with no cost of living adjustments.

Some Conclusions
Everyone should consider their personal and financial situations when deciding when to apply for Social Security retirement benefits. However, there are some general conclusions that may make sense for you.

  • Unless you are planning to have a low-paying job after age 62, there is a significant reduction in your benefits that will not be recovered.
  • If you need Social Security benefits for living expenses, consider applying for them early.
  • If you are in poor health, consider applying for benefits early.
  • If you expect to live to normal life expectancy age, there is not a great difference in lifetime benefits between starting at 66 or 70 and only a small detriment to starting at 62.
  • If you do not need the benefits for living expenses, are healthy, have a family history of long lives and expect to live past your life expectancy, delaying benefits to age 70 should be considered.

You should consider this matter carefully and be sure to understand all the implications of when you apply for Social Security benefits. Consider discussing this with your family, representatives from Social Security and your financial advisor.

Tags: Financial Education, Retirement
Jane Tener on 7/21/2014 at 4:13 PM
The article on retirement, cleared up many of the questions that lingered after I started taking SS payments at age 67. It was comforting to read the details you provided. Thank you for publishing this. Jane
Mary on 7/22/2014 at 12:39 PM
The total lifetime benefits chart included in the SS retirement article answered precisely some questions I have been trying to figure out on my own. Thanks for the insights. It is very helpful and useful information for me in planning for my future retirement.
Arvest Blog Admin on 7/22/2014 at 1:34 PM
Jane and Mary - We're so happy we were able to answer your questions!
Janice Gaddie on 7/29/2014 at 7:05 PM
I would like to know how much annual earning is allowed if one decide to start at age 62 for SS benefits
Arvest Blog Admin on 7/30/2014 at 2:51 PM

Janice - Please check out this link to the Social Security Administration website which outlines annual earnings allowed under, at and after full retirement age. http://www.ssa.gov/retire2/whileworking.htm

Gary on 8/1/2014 at 2:25 PM
The other factor that may come to play is our out of control gov't spending which will surely have a detrimental effect on ss benefits into the future. This and the vast # of boomers retiring could cause extreme reductions in benefits going forward. You are foolish to have faith that this system can possibly remain solvent given the track record of our illegitimate public "servants". Conclusion; strike as early as possible on this and get what you can, old saying "bird in hand" applies here.

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