Lots of people ask, “When can I collect Social Security benefits?” I hear that question almost as often as “how much money do I need to retire?”
If you’re planning your retirement, one factor you shouldn’t overlook is Social Security – even though many wonder if it will still be there. For most people, Social Security will play an important role in their retirement. One of the complications with Social Security is the question of when to begin taking benefits — you can begin receiving them as early as age 62, as late as 70 or any time in-between.
Since the age of full retirement — also known as your “normal retirement age” — has increased from 65 to some number between ages 66 and 67, close consideration should be given as to when the best age should be to begin collecting benefits in your situation.
”Normal retirement” — age 66 or later
If you are planning for your retirement at age 66 or later, you can collect full benefits. This age will vary depending on your year of birth. If you were born between 1943 and 1954, your age of full retirement begins when you turn 66. For each birth year after 1954, two months are added to normal retirement age. For example, if you were born in 1955, normal retirement age is 66 and two months; if you were born in 1956, it’s 66 and four months, and so on.
For everyone born in 1960 or later, normal retirement age will be 67.
Since you become Medicare eligible at age 65, health insurance won’t be an issue as it is with early retirement. Also, unlike early retirement, you can continue to collect full benefits even though you’re earning income from employment or a business.
Note – Sometimes people grab their benefits as soon as they can and sometimes this is a smart strategy – but not always. Depending on your situation, it may actually make more sense to delay claiming benefits.
Early retirement — age 62
You can begin receiving benefits as early as age 62, but if you do, the monthly payment will be reduced from normal retirement age. For those born in 1960 or later, that will mean a 30% reduction in your monthly benefit compared to waiting until your normal retirement age. The reduction on a non-working spouses benefit is even higher at 35%. For example, if your benefit at normal retirement would be $1,000 per month, it will drop to $700 if you retire sooner.
If you do begin collecting benefits early, you must have alternative health insurance in place. (Neal’s note — you also might want to consider senior term insurance.) Even though you begin collecting your Social Security benefits early, you still won’t be eligible to participate in Medicare until you reach age 65.
Another important consideration is earned income. If you have income from a job or business, your Social Security benefits may be reduced if you begin collecting benefits prior to your normal retirement age. For those born prior to 1955, your benefits will be reduced $1 for every $2 you earn in excess of $14,160. For those born from 1955 forward, your benefits will be reduced $1 for every $3 you earn in excess of $37,680. If you do this route and you are self-employed, certainly maximize your contributions to your self-employed retirement plans.
Late retirement — up to age 70
By delaying your Social Security benefits to age 70, you can increase your monthly benefit. The plan provides an 8% annual (2/3 of 1% per month) “delayed retirement credit” for each year that you delay collection past your normal retirement age. Thus if your normal retirement age is 67, you can increase your monthly benefit by 24% if you delay benefits until age 70.
There is no benefit for delaying Social Security benefits past age 70 — there will be no additional delayed retirement credits for waiting.
If you are determined to be disabled by Social Security, you can receive benefits at any time before age 62 or your normal retirement age. Social Security determines eligibility, but it must involve an inability to work for at least one year.
There are certain medical conditions that will result in a quicker determination, such as acute leukemia, Lou Gehrig’s disease or pancreatic cancer. Others that are less certain will be considered by Social Security, and the outcome will be less certain.
If you’re approved for Social Security disability, you may be eligible for Medicare, and in the event that the claim continues for the rest of your working life, your claim will be converted to Social Security retirement benefits upon attaining your normal retirement age.
Early versus late retirement: Which is better?
Information from the Social Security Administration indicates that there’s no substantial difference in lifetime payouts due to the fact that if you delay until age 70, your benefits will be higher for the rest of your life, but if you begin at 62 you’ll be receiving them for an extra eight years.
The determination as to when to begin receiving Social Security benefits depends mostly on individual circumstances. What circumstances might influence your decision?
Certainly, if you’re 62 and unemployed or in poor health, you’ll want to begin receiving benefits as soon as possible. Conversely, if you’re in your sixties and fully employed but have little or no retirement resources, you’ll want to delay benefits until age 70 to maximize the monthly benefit.
If you’ve reached your normal retirement age and you have retirement income investments that you want to continue to build, you can collect your Social Security benefits, continue to work and use the benefits to increase your retirement savings. And since you have reached your normal retirement age, your benefits will not be decreased due to earned income.
As noted above under early retirement, health insurance coverage can be an issue if you begin collecting benefits prior to age 65. Since normal retirement age has moved past age 65 for everyone who will be retiring from now on, an important caveat has developed in regard to Medicare. You are still Medicare eligible at age 65 even if you are not collecting Social Security. However the cost of your Medicare coverage will increase if you delay enrollment past age 65.
The following is a warning from the Social Security Administration in regard to Medicare:
“If you decide to delay your benefits until after age 65, you should still apply for Medicare benefits within three months of your 65th birthday. If you wait longer, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost you more money.”
Moral of the Medicare story: regardless of when you begin collecting Social Security benefits, be sure to enroll in Medicare as soon as you are eligible. That happens when you turn 65.
If you’d like more information on when you should begin collecting Social Security, go to the Social Security Online website.