One of the biggest retirement decisions to make is when to start receiving your Social Security benefits. That’s because the age at which you start collecting is one determinant of the amount of the monthly checks. The longer one waits the larger the checks because of two factors. One factor is COLA (Cost of Living Adjustments). Another important factor comes from actuarial science. The older one becomes, on average, one has less life time remaining. Therefore, by waiting, the checks are larger.
Nevertheless, many beneficiaries want to start collecting Social Security at age 62 and not postpone the benefits to as late as age 70.
Some years ago, age 65 was Full Retirement Age (FRA). The rules changed in 1983. Following the rules changes, the Social Security Administration assigned our full retirement ages based on the year we were born. For those born prior to 1938, FRA was age 65. For those born after 1959, FRA is age 67. For those born between 1937 and 1960, FRA becomes one month to eleven months beyond age 66.
You are permitted to start receiving Social Security retirement benefits early as age 62. There is no apparent advantage to delaying benefits beyond age 70. Many people start collecting Social Security at age 62. The following presents a few reasons that folks make the decision to start receiving benefits early.
1. Need: You may decide that you must start at age 62
According to the 2016 Retirement Confidence Survey, 55% of early retirees reported health problems or a disability as the retirement reason and 24% cited changes at work such as a downsizing or workplace closure.
With early retirement comes the higher probability of having less money saved to support retirement income needs and therefore an even greater need for Social Security dollars.
2. It May Be a Breakeven Situation
According to the SSA, if you live to the average life expectancy for someone your age, you will receive about the same amount in life expectancy benefits regardless of whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between. The system is based on actuarial statistics and used average-length lives in the benefits calculations. Therefore, it will wash in terms of total benefits received no matter when you start collecting if you live to your life expectancy.
The primary reason people choose to start collecting Social Security later than their full retirement age is that benefits increase in value by 8% per year up to age 70. So, by delaying for three years from 67 to 70, the benefit checks can be 24% greater. Instead of collecting $2,000 per month the retiree would receive $2,480 per month plus COLA benefits.
One catch to the scheme is that the retiree would not collect any benefits to age 70 or to whatever age the benefits start if earlier than age 70.