The age-old debate about what is the best age for take Social Security looks like it’ll never end.
Part of the reason is that there is no black and white answer. Like many other financial calculations, your own personal situation will determine what the right age is for you, even if it is different from your friends, family members or those in the financial press.
The bottom line is that there are pros and cons to taking social security at any age and you will need to weigh what makes the most sense to you in terms of your financial security. Here’s a look at three common times retirees take social security, along with the reasons why they may or may not be the best choice for you.
Age 62 (early retirement)
Perhaps not surprisingly, age 62 is a popular age for retirees to require social security, with more than 25% opting for this choice. After all, there is certainly an appeal to get what feels like “free” money from the government as soon as possible. And for some retirees, this is the best choice.
For example, if you have few other sources of income and Social Security will put food on the table, you may not have much choice but to demand early. Others choose 62 years because they want to get checks as long as possible. And still others take the opportunity to live abroad in a low-cost country, where the size of a social security check, even at the age of 62, can be ample to live on.
Be aware that the biggest disadvantage of taking out social security at the age of 62 is that you permanently reduce the amount on your check, to about 30% less than you would receive if you waited until age 67.
Age 67 (full retirement)
For those born in 1960 or later, full retirement, as designated by the Social Security Administration, begins at age 67.
As the life expectancy of Americans has become significantly longer since Social Security was introduced in the 1930s, more and more people are not only living longer but also working longer. While retirement used to mean a gold watch and a pink slip at age 65, many Americans now work until age 67 and over. This is at least part of the reason why the percentage of Americans taking social security at age 62 has dropped in this century – down from about 50% in the mid-2000s.
The bottom line is that if you plan to work until at least full retirement, there may be no need to take social security early. By waiting until age 67, a monthly benefit of $ 1,400 at age 67 will grow to around $ 2,000 – and this “pay rise” is permanent for the rest of your life.
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Age 70 (late retirement)
If you can wait up to 70 years to claim your social benefits, you are in rare company. Only about 5% of men and 7% of women apply by age 70, according to the Social Security Administration.
The reasons for this are numerous. First, many retirees simply cannot afford to wait eight years after age 62 to start receiving benefits. Second, Americans with poor health may not even fear surviving until they are 70 years old or being in a state where they are unable to enjoy their benefits.
But if you do not need the money – maybe you are planning to continue working, or you have another source of pension income – or if you have excellent health, waiting for 70 years will pay off big time. If you were born in 1943 or later, your checks will increase by 8% annually for each year you defer social security claims after age 67. It’s just shy of the average annual return on the stock market, one of the best performing asset classes, without any of the risk. This means that a monthly benefit of $ 2,600 at age 67 can grow to around $ 3,300 at age 70.
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What are breakeven points?
Social security has a break-even point where you will have deducted the same amount of benefits no matter when you started. For example, imagine you have the option to withdraw $ 1,500 monthly at age 62 versus $ 2,100 at age 67. If you start at age 62, you will have deducted $ 90,000 by the age of 67. Since you would earn an additional $ 600 per. month, if you had waited until age 67, it would take you 150 months, or 12.5 years, to reach your breakeven point. In this case, when you reach 79.5 years, you have earned the same amount, whether you started as a 62-year-old or waited until the age of 67.
If you want to maximize your overall benefits, you will need to guess whether you expect to live beyond the breakeven point. Of course, no one can know for sure how long they will live, but you can take into account variables such as life expectancy and your own general health and well-being to make an estimate. For example, if you are a healthy individual coming from a long-term family, you will probably earn the most by waiting until you turn 70 to start receiving benefits.
The bottom line
There is no definitive answer as to when you should receive your social benefits. Factors ranging from your health, your current retirement savings, your life goals and your future retirement date all play a role in helping determine when the best age is to maximize your benefits.
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