You may be wondering what age experts agree is the optimal time to begin receiving Social Security benefits. The answer is: there is no true answer. It all depends on your individual situation. Some people may benefit from waiting as long as possible to begin drawing, while others are better off tapping into their benefits as soon as they become eligible. You need to understand the pros and cons of using your benefits right away, versus waiting, in order to figure out your ideal age.
You can begin receiving your Social Security benefits as soon as you turn 62, but there are plenty of reasons to hold off until you are 67 or even 70. The Social Security Administration (SSA) keeps track of the earnings associated with your Social Security number (SSN), and they use your top 35 highest income years, adjusted for inflation, to determine how much you qualify for in benefits. Working for just a few extra years at a higher pay rate can help make up for your low-pay, entry-level years.
However, if you are not in good health or your family has a history of shorter than average lifespans, this may not be the best way to go. Your surviving spouse will benefit from a bigger monthly check after you pass, but there is a good chance you will work away your retirement years and never reap any rewards from your labor.
Getting Every Penny You’ve Earned
Retiring at 62 sounds nice, but there are penalties for drawing on Social Security at the minimum age. If you begin receiving your benefits at the age of 62, you will only receive about 70-75% of the amount you actually qualify for. Every year you wait, your benefits will go up by around 8%, until you turn 70. If you were born before 1960, the SSA considers your full retirement age (FRA) to be 76. If your birth year was later than that, your FRA will be between 66 and 68. If you wait until your FRA to start using your Social Security benefits, you will receive 100% of what you qualify for based on your lifetime earnings. You can use the SSA’s website to determine your FRA.
If you are married, it might make sense for one spouse to begin using their benefits early, while the other waits until they can get the full amount. This especially applies if one spouse makes substantially more money, or one of you is in bad health and is unlikely to live to 70 or more. Also, if you are unable to work and do not have enough retirement savings to live on, it may be worth it to take the penalty and receive a steady income. On the opposite hand, if you have more than enough in your retirement accounts and are not reliant on Social Security benefits, you can take the money early and invest it.
A Working Retirement
You do have the option to continue working while you are receiving your Social Security benefits, however, there is a limit on how much you can earn. As of 2018, you can bring in up $17,040 on top of your benefits. Anything over that amount will affect how much you receive in benefits. If you have not yet reached your FRA, you will lose $1 in benefits for every $2 you go over the income limit. The year that you reach your FRA, the limit changes to $45,360, and you forfeit $1 of your benefits for every $3 that you exceed that limit. Income limits only apply to money that you actively earned, so things like alimony, child support, investments, and retirement accounts don’t count toward your earnings.
The good news is, once you reach your FRA, there are no earnings limits at all. The bad news is, your Social Security benefits will become taxable if your income exceeds a certain amount. If you file as an individual and your earned income plus half of your benefits is over $25,000, half of your benefits become subject to federal taxes. If the total is more than $34,000, then 85% of your benefits can be taxed. For couples filing jointly, these numbers are $32,000 and $44,000, respectively. There are also 13 different states that tax Social Security benefits according to their own regulations.