Social Security can replace at least some of your income after you retire. The amount of your Social Security retirement benefits is based on how much you earned over your lifetime. So, if there are some years when you did not work, it could result in a lower amount of benefit than if you had worked and earned more.
Another key determinant of how much Social Security you’ll generate has to do with your age when you initially claim this income. In this case, the younger you are when you file, the lower the dollar amount of each payment will be.
Even so, believe it or not, it might still make sense to claim Social Security retirement income at age 62.
Deciding When to File for Your Social Security Retirement Income
Choosing when to begin your Social Security retirement benefits can be one of the most important decisions of your life. Waiting until your full retirement age (FRA) allows you to receive the full benefit amount that you are eligible for. Depending on your birth date, your Social Security full retirement age can be anywhere between 65 and 67.
Social Security Full Retirement Age
|Year of Birth||Minimum Retirement Age for Full Benefits|
|1937 or Before||65|
|1938||65 + 2 months|
|1939||65 + 4 months|
|1940||65 + 6 months|
|1941||65 + 8 months|
|1942||65 + 10 months|
|1943 to 1954||66|
|1955||66 + 2 months|
|1956||66 + 4 months|
|1957||66 + 6 months|
|1958||66 + 8 months|
|1959||66 + 10 months|
|1960 or Later||67|
Source: Social Security Administration
If you wait and file for Social Security after you’ve reached your FRA, the amount of your benefit payments will be increased. For instance, each year that you wait between your full retirement age and age 70 can result in an 8% raise in the dollar amount of your benefit. (You may still wait until after age 70 to claim Social Security, but the 8% “delayed income credit” will no longer be available).
As an example, if your full retirement age is 66, and the monthly dollar amount of your Social Security benefit at that time is $2,000, then waiting until age 70 to file can result in a significant increase in your monthly payments.
Social Security Delayed Income Credit
|Age||Monthly Benefit Amount|
|66 (full retirement age)||$2,000|
(Note: These calculations use simple interest of 8% per year, and they do not reflect any cost-of-living increases)
In many cases, retirees may not want to wait until age 70, or even until full retirement age, to file for Social Security. While many financial advisors recommend waiting, though, there could be some definite advantages when claiming Social Security early.
For instance, even though the dollar amount of each payment is reduced, you can receive the payments for a longer period of time. So, there is a crossover, or break-even point to consider – especially if you have a long life expectancy.
Looking at a hypothetical example, if your birth year is 1960, then your full retirement age (FRA) is 67. Assuming that your Social Security benefit is $1,000 per month at your FRA, it drops to $700 (approximately 30%) if you opt to start your benefits at age 62.
However, if you wait until your full retirement age five years later at age 67, the monthly benefit would be $1,000. But, it was $0 during the five years between age 62 and 67. So, choosing to receive Social Security at age 62 gives you a total of $42,000 received before you even reach age 67.
Going forward, it would take more than 11 years – at age 78 years and 8 months – for the total amount of benefits received to equal out. A Social Security break-even calculator can help you to determine how long it would take to earn the same cumulative amount of income by starting your benefits early or late. Working with a retirement income specialist can also be beneficial.
When is the Right Time for You to File for Social Security Benefits?
There are pros and cons that go along with claiming Social Security at age 62 or waiting until after you have reached your full retirement age. Because everyone’s needs and goals can differ, though, there is no single Social Security filing strategy that will work for all retirees across the board.
With that in mind, it is recommended that you talk with a retirement income specialist who can assist you with coordinating your income sources and/or filling in any “gaps” you may have between your expenses and incoming cash flow.
At Annuity Gator, we specialize in helping people generate guaranteed retirement income – and we can assist you with creating a plan that works for you. So, feel free to reach out to us and set up a time to chat.