When it comes to Social Security benefits, timing is everything. The decision of when to start collecting Social Security can significantly impact your financial well-being during retirement. This information is to help your conversation with your financial advisor as you discuss the best time to start collecting Social Security.
This is not financial advice. This information represents subjects and concepts about starting to collect social security. The information below should be used to enhance your conversations with a financial advisor. This information is to help set a framework for gathering the specific information you need to determine the best time to start collecting social security.
Differences in Waiting to Start Collecting Social Security?
Before diving into the best timing for Social Security, it’s essential to understand the key milestones and options:
- Early Retirement (Age 62): You can start collecting Social Security benefits as early as age 62. However, if you choose this option, your monthly benefit will be permanently reduced compared to what you would receive at full retirement age.
- Full Retirement Age (FRA): Full retirement age varies depending on your birth year. For those born between 1943 and 1954, the FRA is 66. If you were born in 1960 or later, the FRA is 67. At FRA, you can collect your full benefit without any reductions.
- Delayed Retirement (Up to Age 70): Delaying Social Security beyond your full retirement age can result in increased monthly benefits. For each year you wait, your benefit grows by a certain percentage until you reach age 70.
Best Reasons to Start Early
- Early Access: The most apparent advantage of starting Social Security at age 62 is early access to benefits. If you need the income immediately or have health concerns that may limit your life expectancy, starting early could make sense.
- Flexibility: Collecting benefits early provides flexibility in your retirement planning. You can use the extra income to pay off debts, invest, or enjoy your retirement years.
- Spousal Benefits: If you’re married, your spouse may be eligible for spousal benefits based on your Social Security record. Starting early can help provide additional financial support for your spouse.
Best Reasons to Wait
- Larger Monthly Checks: Delaying Social Security results in more substantial monthly benefits. For each year you postpone beyond your full retirement age, your benefit increases by approximately 8%, up to age 70.
- Longevity: If you expect to live a long and healthy life, waiting can be financially advantageous. Those extra years of higher monthly benefits can make a significant difference in your overall income.
- Survivor Benefits: If you are the higher-earning spouse, delaying Social Security can benefit your surviving spouse. They will receive a survivor benefit based on your higher benefit amount.
Things to Consider Before You Start Collecting Social Security
Work or other sources of income can affect your Social Security benefits depending on your age and earnings. Here’s how work and income impact your Social Security:
1. Collecting Social Security Before Full Retirement Age:
- If you start collecting Social Security before reaching your full retirement age (FRA), there’s an earnings limit. In 2023, the limit is $19,560. If you earn more than
this amount from work, your Social Security benefits will be reduced by $1 for every $2 earned over the limit.
- In the year you reach your FRA, the earnings limit is higher. In 2023, it’s $51,960, and the reduction is $1 for every $3 earned over this limit but only for earnings before the month you reach FRA.
2. The Year You Reach Full Retirement Age:
- If you reach your full retirement age during the year, a different rule applies. There’s no limit on your earnings, and your benefits won’t be reduced because of your income. You can earn as much as you want without affecting your Social Security benefits.
3. Collecting Social Security After Full Retirement Age:
- If you start collecting Social Security benefits after your full retirement age, your earnings won’t impact your benefits, no matter how much you earn from work.
4. Other Income Sources:
- Other sources of income, such as pensions, investments, and rental income, generally don’t affect your Social Security benefits. Your benefits are based on your lifetime earnings, not your total income from all sources.
5. Taxes on Social Security Benefits:
- Depending on your total income, you may have to pay federal income taxes on a portion of your Social Security benefits. This applies if your combined income (including half of your Social Security benefits) exceeds a certain threshold: $25,000 for individuals and $32,000 for married couples filing jointly. Up to 85% of your benefits may be subject to taxation.
It’s important to note that while your benefits may be reduced if you earn income above the limits before your full retirement age, they won’t be lost entirely. The Social Security Administration will recalculate your benefits once you reach full retirement age to account for the months when benefits were withheld due to excess earnings.
Before making any decisions about work or collecting Social Security, it’s advisable to consult with a financial advisor or use the Social Security Administration’s online tools to estimate how your income might affect your benefits. Planning your retirement income strategy carefully can help you make the most of your Social Security benefits and other income sources.
Tips to Make the Most of Collecting Social Security
- Plan Ahead: Assess your financial situation, health, and retirement goals to determine the best time to start collecting Social Security. Consider consulting a financial advisor for personalized advice.
- Maximize Benefits: If you can afford to delay benefits until age 70, you’ll receive the maximum possible monthly benefit. This can be particularly advantageous for those with longevity in their family history.
- Consider Your Spouse: If you’re married, remember that your Social Security choices can affect your spouse’s benefits. Explore different claiming strategies to optimize both of your benefits.
- Stay Informed: Keep yourself updated on changes to Social Security regulations and benefit calculations. Legislation can impact your options and potential benefits.
In summary, the best time to start collecting Social Security depends on your individual circumstances, including your financial needs, health, and retirement plans. While some individuals may benefit from starting early, others can maximize their income by waiting until full retirement age or beyond. Weigh the pros and cons carefully, and consider consulting a financial expert to create a strategy that aligns with your retirement goals. Making the right decision about when to start collecting Social Security can help ensure a more financially secure retirement.