Social Security Benefits: Which Strategy Is Right for You?

Your choice of when to start receiving Social Security benefits depends on your individual and family situation.

See the big picture

When it comes to Social Security, you'll face a strategic decision as you approach retirement: When to start receiving benefits. Should you start as soon as you're eligible, or wait as long as possible? Or is there a "perfect time" somewhere in between?

Generally speaking, it's best to wait as long as possible—up to age 70—before starting to receive your Social Security benefits. Your monthly payments will be higher for the rest of your life, which can make a real difference, especially if you expect to exceed the average life expectancy of your age group.

But life doesn't always go according to plan, and factors such as your health and financial situation may cause you to lower your target age from 70 to 62—or somewhere in between. Once you know all the facts, you can be more confident in your decision.

The critical question

Which would be better for you in the long run: a smaller monthly benefit sooner or a larger monthly benefit later? Your answer depends on a number of factors, including your:

  • Full retirement age
  • Current and future income requirements
  • Current health and life expectancy
  • Other sources of income

What is full retirement age?

This is where it gets tricky. You'll get your maximum monthly benefits if you wait until age 70 to claim them. So your full retirement age is 70, right? Not exactly.

The term "full retirement age," as defined by the Social Security Administration (SSA), is a carryover from before 1972, when all maximum monthly benefits were paid at age 65, period. Certain provisions are still linked to full retirement age, such as how much you can earn while still receiving benefits, and widow and spousal benefits.

Your full retirement age is based on your birthday, and that's when you first become entitled to "full or unreduced retirement benefits." The SSA offers a handy calculator to help you find your full retirement age(opens in a new tab).(opens in a new tab)

Note that "full" does not mean "maximum." If you start receiving benefits at your full retirement age, you won't be getting the maximum monthly amount.

Again, you'll get your maximum monthly benefits if you wait until age 70 to claim them. In fact, for every year you delay receiving benefits after your full retirement age (normally 66 or 67) up to age 70, your benefits will increase by 8 percent.

Choosing your age to receive benefits

You can begin receiving retirement benefits at any point from ages 62 to 70, but if you choose to start receiving benefits as early as age 62, they may be reduced by as much as 30 percent.

While it's not always possible to delay retirement, the longer you wait after full retirement age, the larger your benefits are likely to be. Social Security provides delayed retirement credits, which give you increasingly larger benefits—for each year you delay—from full retirement age to age 70.

The SSA provides a simple tool to calculate the effect of your early or delayed retirement(opens in a new tab).

Consider your income needs—now and in the future

If you're thinking about retiring early from the workforce and have other income streams, such as investments, a pension or rental income, you can be more flexible about when to start receiving Social Security benefits.

But if you're depending on Social Security to help make ends meet, you might consider postponing your benefits for as long as possible by continuing to work—even if it's just part time—until you reach full retirement age or later. And even if you do elect to start receiving benefits at age 62, you can still earn up to a certain amount without penalty. See how work may affect your benefits(opens in a new tab).

Health and life expectancy considerations

Are you in good health and expect to live longer than the average person? If so, you may want to start receiving your benefits later than your full retirement age. You won't get as many payments during your retirement, but each one will be larger. 

If you're in poor health or feel that you won't reach the average life expectancy, it may be wiser to start receiving benefits sooner than later.

The SSA can help you calculate your average life expectancy(opens in a new tab) based on your age and gender.

You can stay employed

Once you reach your full retirement age, you can keep working and still get your full Social Security benefit payments no matter how much you earn.

Does that mean you should limit your earnings prior to reaching full retirement age? Not necessarily. Even if some of your benefit payments are withheld, you'll get a higher monthly benefit later. So overall, earning "too much" won't decrease your total lifetime benefits—and it may actually increase them.

What about Medicare?

One of the most commonly asked questions about Medicare is, "Do I need to sign up when I'm 65?" The answer, again, is "It depends."

If you're retired, you'll probably need to sign up for Medicare Part A and Part B at age 65. If not, then your answer hinges on a number of factors, including how many employees your company has and how good your employer's group health coverage is.

Either way, it probably makes sense to sign up for Medicare Part A at age 65 because there's no cost for most enrollees, and it can serve as a secondary form of insurance if you ever need it.

A word of caution: Depending on your situation, if you don't sign up for Medicare during your initial enrollment window, which starts 3 months before you turn 65, you may have to pay a late enrollment penalty for as long as you have Medicare coverage.

The SSA has more information on how to apply for Medicare(opens in a new tab), including details about Parts A and B and when you should consider enrolling.

The bottom line

Unlike an investment portfolio, Social Security isn't affected by market fluctuations. It also includes built-in protection against inflation and provides a steady income stream for the rest of your life.

That's the good news. The potential stumbling block comes in the form of a major decision you have to make: when to start receiving benefits. Remember, timing is everything, and a poorly informed decision can end up costing you tens of thousands of dollars over the course of your retirement.

You, however, can make a wise decision about your Social Security benefits by gathering all the facts. The SSA Benefits Planner(opens in a new tab) has more information, including benefits calculators and a wide range of related resources.

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