Most of the articles on this site are geared towards folks who are around the start or mid-point of their working years – partly because that’s my perspective.
From time to time, I have folks near or in retirement ask me questions about Social Security.
I want to admit right at the front that I’m not super experienced about it. I can (hopefully) do math but Social Security is not my strength, so if you want to join me on a little adventure… please come along. 😂
That being said, my parents just went through this decision process and I felt like I was at a loss (at the time) because I knew so little about it.
That said, it can’t be that hard to decipher right? It’s just math!
So, should you be delaying when you collect Social Security?
🦉 While I am not an expert, I did ask my older and wiser friend on the internet, Fritz Gilbert, to take a look at this post and point out any potential problems. Fritz is the founder of The Retirement Manifesto, the type of blog you’d want to read if you were interested in this type of thing!
Table of Contents
How Do Social Security Benefits Work?
To understand this, we need to look (briefly) into how Social Security works.
When you are paid by your employer, a portion is taken out to pay FICA – Federal Insurance Contributions Act. It’s a tax that is taken out to pay for Social Security (6.2% of your salary, on up to $160,200 of earnings for 2023) and Medicare (1.45% of your salary, with no cap).
That’s how money gets into the Social Security system, how does it come out?
There are two benefits – the Worker’s benefit and the Worker’s Spouse’s benefit. We will assume you are the worker and that you have a spouse.
You can start receiving Social Security at the age of 62 but you don’t get “full benefits” unless you wait until your “Full Retirement age.”
The same is true for your spouse. The spousal benefit can be as much as 50% of the worker’s benefit, depending on the spouse’s age at retirement. The benefit is reduced if the spouse starts taking payments before their Full Retirement Age. (it is reduced 25/36 of 1% for each month before normal retirement age).
What is your Full Retirement Age?
Your Full Retirement Age depends on when you were born (sometimes referred to as Normal Retirement Age):
| Year of Birth | Full (Normal) Retirement Age |
|---|---|
| 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 or later | 67 |
If you take Social Security at Full Retirement Age, you get the full benefits of what’s listed in your Social Security Statement.
What happens if you take Social Security early?
For simplicity, let’s consider someone who is born in 1960.
It’s 2023 so that person is now 63 years old. That person could’ve started taking benefits last year (in any month in which they where at least 62 years old for the entire month) and a $1,000 retirement benefit would’ve been reduced to just $700 – a 30% reduction.
🚩 This assumes you are not earning a salary. If you earn a salary and take Social Security early, your benefit is reduced by 50% of what you earn over the annual limit ($21,240 in 2023). You can use this Retirement Earnings Test Calculator to help estimate your benefits. You will, however, get that reduction back when you reach full retirement age.
The spousal benefit, assuming the spouse is of the same age, would be $500 at Full Retirement Age. If taken at 62, it would be reduced to $325 – a reduction of 35%.
If you take Social Security before your Full Retirement Age, the benefit is reduced. Significantly.
💡 If you begin taking Social Security early and change your mind within the first 12 months of getting the benefits, you can pay them back and restart later. This could be because you decided to go back to work or came into some money otherwise – you can only do this once.
You can also voluntarily stop payments
If you’ve reached Full Retirement Age and are not yet 70, you can choose to stop benefits to earn “delayed retirement credits” that will increase your benefit. More on that shortly as we discuss why someone might wait until 70 to get start Social Security benefits.
Why Do Retirees Delay Getting Social Security?
There are many situational reasons – you’re still working and don’t need the benefits, you are healthy and expect to live longer than the average life expectancy, etc.
But the main consideration, independent of other factors, is that by waiting you can increase your monthly benefit.
🔥These increases are on top of any Cost of Living Adjustments (COLA). COLAs are added to your primary insurance amount whether you’ve started receiving benefits or not. So you don’t miss out on inflation adjustments if you delay.
If you have reached Full Retirement Age and delay getting Social Security, your monthly benefit will increase by a set amount (until age 70, at which point there is no increase):
| Birth Year | 12-Month Rate of Increase |
Monthly Rate of Increase |
|---|---|---|
| 1933 – 1934 | 5.5% | 11/24 of 1% |
| 1935 – 1936 | 6.0% | ½ of 1% |
| 1937 – 1938 | 6.5% | 13/24 of 1% |
| 1939 – 1940 | 7.0% | 7/12 of 1% |
| 1941 – 1942 | 7.5% | ⅝ of 1% |
| 1943 or later | 8.0% | 2/3 of 1% |
Whether or not you should wait will depend on your specific situation. By waiting, you get a higher benefit. By taking it at Full Retirement Age, you get more, but slightly smaller, payments.
There is no financial reason to wait once you turn 70 though. (You could wait as long as 70 years and 6 months because Social Security will pay you up to six months of retroactive benefits)
There’s also the slight concern about the solvency of the Social Security Trust Funds. According to the Center on Budget and Policy Priorities, the funds would not be depleted until 2034 assuming policymakers do nothing. And even if they were to be depleted, the program could still pay about 80% of promised benefits.
Should You Wait?
Here’s where a little bit of math helps and fortunately the Social Security Administration has done some of the work for you – download your Social Security Statement and it will show you a “Personalized Monthly Retirement Benefit Estimates.”
This amount assumes that my Full Retirement Age is 67 and I continue to earn $108,999 per year until I start my benefits.
Deciding how long to wait really depends on the various crossover points, right? If you sum up how much you’ve collected from Social Security, where does each group cross each other?
Here’s what that chart looks like:
The crossover points between taking at 62 and waiting for full retirement at 67 is the 8th month of the 78th year. That’s 16 years into collecting Social Security (if you started at 62).
If you wait until 70, how long until your total amount collected beats what you would’ve collected had you started at 67? It’s not until the 4th month of your 82nd year. That’s just 12 years from Full Retirement Age.
If you make it to 85, how much would you have collected from Social Security?
- Starting at 62 – $668,160
- Starting at 67 – $754,680 (+$86,520)
- Starting at 70 – $788,160 (+$33,480)
My takeaway from this is that the differences are relatively slight so it’s unlikely you will make a catastrophic decision that will affect your quality of life. If you still aren’t sure, Fritz has an easy to understand guide on when to take Social Security benefits that should help you answer that question in about fifteen minutes (for those of you are more number crunchy, this Open Social Security Calculator may be useful).
It seems like this is a case of do what feels right for you given your current financial situation, that will likely be the biggest motivator for taking it early or delaying it past Full Retirement Age.
For that, I recommend talking to a financial advisor to discuss your specific situation to know which choice is right for you.