Over 69 million people in the United States receive social security benefits — so needless to say, it’s a pretty important topic. Understand that the government is simply giving you back all the money they deducted from your paychecks (“FICA”) while you were working. But with the many nuances and complexities of the social security system, it can be an overwhelming process.
While the benefits may seem clear and simple, it’s certainly not a one-size-fits-all type of deal. In fact, your benefit can change depending on when you decide to enroll. Timing is everything.
When’s the best time to collect your benefit? Let’s dig into all of the possible options.
Collect early at 62
Unless you’re collecting survivor or disability benefits, you’re eligible to enroll in social security at 62. However, collecting early causes a permanent reduction in benefits, which can be up to 30%! If you don’t need the income from Social Security to pay your bills, it’s a smart idea to wait so you can receive increased benefits.
If a 30% reduction doesn’t seem like a lot to you, let’s use an example. This reduction makes a $2,000 monthly check drop to $1,400— that adds up to about $130,000 over the average retirement length of 18 years. From the government’s perspective, the basic idea is that they will be paying you the same total amount over your expected lifetime, but the longer you wait to collect, the shorter your remaining lifetime. So they will end up paying you a higher amount but over a shorter period of time and the total payout remains the same.
If you’re still working and collecting social security benefits before your full retirement age, be careful that you don’t exceed the earnings limit. The SSA deducts $1 in benefits for every $2 you earn over the $18,960 limit.
While collecting early isn’t always ideal, it can be best for some depending on their needs. In some cases, it may be smart to use a home equity loan in order to postpone collecting your social security payments. But in other cases maybe not.
Before it’s time to decide to collect early, make a plan with your financial advisor and take back control over your finances. Evaluating and maintaining a spending and savings strategy early puts you in control over your social security benefits.
Collect at Full Retirement Age (FRA)
Full retirement age (FRA) is when you’re eligible to receive full social security benefits. Your full retirement age is set by social security. Find yours on the chart below.
At full retirement age, you’re eligible for your entire primary insurance amount (PIA) — which is just a fancy term that means you’ll receive 100% of your benefit. To get a jump start pre-retirement, you can estimate your PIA by creating a my social security account.
Collecting at FRA is a great option for many people as it allows them to collect their full earned benefits and not delay the added income source.
Collect at age 70
As the saying goes, good things come to those who wait. For every month you delay your benefits up to age 70, you earn delayed retirement credits — amounting to about 8% per year. Once you reach 70, the delayed retirement credits stop, so there’s no reason to keep waiting to collect.
The longer you can afford to wait, the larger your monthly benefit will be. Collecting at age 70 is an excellent way to maximize your social security benefits long-term. This option is often best for people with high expected longevity, minimal health concerns, and a steady cash-flow plan.
What about couples?
Spousal benefits work a little differently. In short, a spouse is eligible for up to 50% of the primary earner’s benefit if they collect at their full retirement age.
Divorced spouses can also be entitled to benefits based on their former spouse’s earning record. If you were married for at least 10 years, are at least 62 years of age, and currently single, you would be eligible to collect those spousal benefits. Divorced couples can access survivor benefits as well, should they meet certain requirements.
There are many planning and strategy opportunities when it comes to spousal benefits, so we recommend you sit down with your financial advisor to create a plan unique to your needs and help maximize your resources.
The bottom line
You don’t have to take social security just because you're retired. If you have a solid financial plan in place, you can even be rewarded for collecting your benefits later! At the end of the day, it all comes down to executing a strategic financial plan.
The social security process can feel like an impossible maze of information and you don’t know where to turn next — but it doesn’t have to be that way. At Pro Wealth, our mission is to alleviate that financial stress and help you reach your goals now and well into retirement. Don’t take the journey alone, give our team a call today.