Social Security

Total lifetime benefits

Understanding the logic

When considering retirement, one of the first decisions people contemplate is when to start collecting Social Security.

Typical conversations focus on age 62, 67 or 70
Experts and non experts often highlight that waiting until age 67, the full retirement age for many, will increase your monthly payments by over 40%, and is your best choice.
Others say waiting until age 70 gets you even more and is even smarter.
But there is a caveat: Social Security is designed to pay out ~ the same total lifetime benefits regardless of when you begin collecting*.

In the following scenario, if you start collecting Social Security at age 62, you'll receive ~$2,142 per month. If you wait until age 67, you'll receive ~$3,043 per month, a 42% increase.

However, consider these points:

1) If you plan to start collecting at age 67 instead of age 62, and you have an untimely death at age 67:

The ~$130K that you would have collected between age 62 and 67 never gets collected by you or your heirs.
You’ve essentially donated that amount to the Social Security Administration.

2) If you begin collecting Social Security at age 67 and live until life expectancy

Your cumulative payouts will be ~ equal to those who started at age 62, with both scenarios totaling ~$440K.
Waiting to collect offers greater cumulative benefits only if you live beyond the average life expectancy ~80.

3) If you plan to start collecting at age 70 instead of age 62, and you have an untimely death at age 70:

The ~$230K that you would have collected between age 62 and 70 never gets collected by you or your heirs.
You’ve essentially donated that amount to the Social Security Administration.

Ultimately, you need to decide whether you prefer to be financially ahead before or after reaching life expectancy ~80, keeping in mind that aging often brings chronic conditions that can affect your Quality Time Remaining (QTR).

See Chart below*

*Opportunity costs and COLA on Social Security not included in analysis.

AARP

Benefits and Tools

there is no right or wrong answer

Deciding when to start collecting Social Security depends on several factors:

Full Retirement Age (FRA): Benefits are reduced if claimed before FRA (typically 66 or 67). Delaying benefits past FRA increases them by 8% per year until age 70.
Early vs. Delayed: Claiming early (age 62) reduces benefits by up to 30%. Delaying increases your monthly benefit, which could be better if you expect to live a long life.
Health and Longevity: If you’re in good health and expect to live a long time, delaying might be better. If health is a concern, claiming early may be more beneficial.
Income and Employment: Working while collecting before FRA may reduce your benefits if you earn over a certain threshold. After FRA, you can work without any reduction.
Spouse's Benefits: A spouse can claim based on your record or survivor benefits. Delaying can increase both your benefit and the survivor benefit. Also, it is possible for a spouse to start receiving Social Security at age 62 based on their own work record, and then switch to the spousal benefit if it's higher later.
Other Retirement Savings: If you have other retirement income, you may have more flexibility to delay Social Security for higher future benefits.
Taxes: Social Security benefits can be taxed, depending on your income. Delaying can reduce your taxable income, especially if you have other retirement savings.
Break-even Point: Delaying typically pays off after age ~80, so consider how long you expect to live.

The Social Security Administration (SSA) provides general information about benefits but does not offer personalized financial advice. They can help you understand:

How much you'll receive at different ages (via online calculators or in-person statements).
When your Full Retirement Age (FRA) is based on your birth year.
The impact of early or delayed claiming on your benefits.

However, SSA representatives typically won’t give advice on the best time to claim Social Security based on your personal financial situation, health, or retirement plans. For that level of advice, you may wish to consult a financial planner or retirement advisor who can analyze your individual circumstances.

There is no right or wrong answer!

Social Security

Total lifetime benefits

Understanding the logic

AARP

there is no right or wrong answer

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