April 5, 2020

Edited 05/19/20

When Should I Take My Social Security Benefits?

There’s a strategy behind choosing your most optimal time to elect your Social Security benefits.

Most people are eligible to begin collecting Social Security at age 62 if they’ve paid into the system for at least 10 years. But that doesn’t necessarily mean you should. To help you decide the right time to start collecting Social Security, it’s important to understand how benefits are calculated and how the age at which you begin taking benefits will impact the amount you’re eligible to collect.

How Social Security Benefits Are Calculated

Social Security benefits are paid out based on the number of credits you’ve accumulated over your working life. You’re eligible to receive a maximum of four credits in any given year, and in 2020, you’ll receive one credit for every $1,410 you earn. Every year the amount you need to earn to receive a credit increases slightly as wages increase. People who earn at least 40 credits over their lifetime are eligible to collect Social Security benefits when they retire. (Note: These credits are for retirement benefits. The rules are different for disability benefits.)

Your benefits are calculated based on the average of your top 35 earning years. However, not all your earnings are used to determine your benefits. In 2020, the limit is $137,000. Anything you earn over that isn’t included in the calculation of your Social Security benefits.

When You Start Collecting Social Security Impacts How Much You Earn

Full retirement age—which varies from 65-67, depending on when you were born—is the age when you’re entitled to collect 100 percent of your Social Security benefits. You don’t have to wait until full retirement age to begin collecting benefits, and you don’t have to start collecting benefits as soon as you reach full retirement age. Most people are eligible to begin collecting benefits at any time from age 62-70. However, when you begin collecting your benefits impacts how much you receive.

If you start taking Social Security before your full retirement age, you’ll receive a permanently reduced benefit. The amount by which it’s reduced varies based on how long before your full retirement age you start collecting. If you take Social Security as early as age 62, your benefits will be reduced by as much as 25%-30%

If you wait to collect benefits until after your full retirement age, you’ll earn a delayed retirement credit for every month you don’t take Social Security until you turn 70, which can increase your benefit by up to 8% a year. There’s no additional benefit for waiting longer than age 70 to receive your benefits.

While delaying the collection of benefits to increase the amount you earn may sound great, there are many things to consider when deciding the right time to start taking Social Security.

When to Begin Collecting Social Security Benefits

In general, it’s best to wait until full retirement age. But that may not be right for everyone. Here are some of the biggest factors to consider as you decide when the right time is to collect benefits.

  • Health and life expectancy. No one wants to think about their own mortality, but it’s an important point to consider. If you’re in poor health and don’t expect to live into your 70s or 80s, it may make sense to take benefits earlier. On the flip side, if you’re in great health and expect to live another 20 years, delaying benefits might be the right choice for you.
  • Whether someone else qualifies for your benefits. If someone other than you such as a spouse or dependent child is eligible to receive benefits on your Social Security record, it’s important to consider how the timing of when you take benefits will impact them. You may want to delay collecting Social Security to maximize the amount they can receive. If you’re married and one spouse earned more than the other, consider waiting to collect the higher-earning spouse’s benefits. Collect the lower-earning spouse’s benefits earlier if you need the income to pay your bills. The lower earner will be eligible to collect benefits equal to the higher of the two paychecks if they outlive their spouse. 
  • Other sources of income. If you have other sources of income such as savings, CDs, money market accounts, retirement accounts or other investments, you can use those to pay the bills until you reach full retirement age or later. Then, it will probably make sense to wait to collect Social Security.
  • Whether you’re still working. If you’re still working, there’s a limit to the amount you can earn and still receive your full benefit. If you haven’t yet reached full retirement age and are healthy enough to work, it might be worth postponing retirement until you reach full retirement age, so you can collect 100 percent of your benefit. Plus, if you’re in your top earning years, working a little longer may increase the average income used to calculate your benefit, which could boost the monthly paycheck you receive when you start collecting Social Security. 
  • Break-even point. Delaying taking Social Security will only benefit you for so long. At some point, it won’t make financial sense to continue waiting to collect benefits. Since the larger paycheck you’ll receive by delaying benefits won’t offset the income you missed by waiting. Figuring out when that point is may help you decide when to start taking your benefits.

Before you begin collecting Social Security, it’s a good idea to evaluate your overall financial situation and the role Social Security will play in funding your retirement. It’s also important to consider how your health may affect your decision as well as the financial implications your decision will have on others who may be dependent on your income.  In order to decide the best withdrawal strategy for you and your family, there are many cost-effective ways like free Social Security calculators and online resources to get you a detailed picture of your income. If you have a financial planner or tax professional, you can also rely on them.