When Should You Start Taking Social Security Benefits?

When Should You Start Taking Social Security Benefits?
DNY59 / Getty Images

Determining when to tap into your Social Security retirement benefit is one of the most important strategic decisions you will make while planning for 40-plus years of unemployment. Take these factors into account as you develop a retirement strategy. 

1. Money needed to retire
While the average life expectancy currently is hovering in the late 70s, everyone should assume they will live for 40 or more years - into their 100s - after they decide to retire. Assuming 40-plus years of life after full retirement will ensure you don't run out of money, forcing you back to work or limiting your desired lifestyle.  

[RELATED: Try MOAA's Retirement Planner Calculator]

2. Social Security basics
A typical worker must earn 40 work credits to be fully vested in the Social Security program. Credits are earned through paid employment at a certain level of compensation and where Social Security contributions are deducted from each check. 

The amount of money you must earn to gain a Social Security credit has changed over the years. In 2019, you will receive one credit for each $1,360 of earnings, up to a maximum of $5,440 (four credits) per year. You are fully vested in the Social Security program if you work full time, earning four credits per year, for 10 years. 
Note: If you were born before 1929, you fall into a different calculation category.    

3. Full Retirement Age
Full retirement age is the age when you're eligible to receive a full Social Security retirement benefit. This used to be age 65. However, under current law, full retirement age has been extended to age 67. Retirees can elect to receive Social Security retirement benefits as early as age 62 (or sooner if you are a survivor of another Social Security claimant or on disability) or as late as age 70. There is no single best age for everyone to start taking benefits, but delaying the initial receipt until after 62 could pay off over a long retirement.  

4. Taking early payments
Requesting Social Security benefits early can be very costly: Benefits are reduced by five-ninths of 1 percent (0.0056) for each month (up to 36 months) before your full retirement age, and further reduced by five-twelfths of 1 percent (0.0042) a month for each month over 36 months.  

For example, if your full retirement age is 67 and you decide to begin taking benefits at age 62 - five years (or 60 months) early - your benefit will be reduced by 30 percent (36 times 0.0056, plus 24 times 0.0042). 

On the flip side, delaying the start of benefits after full retirement age means you'll receive a credit of 8 percent for each year of delayed benefits (out to the maximum age 70). If your full retirement age is 66, but you delay the start of benefits four years, until age 70, your benefit will be 32-percent higher.    

[RELATED: Try MOAA's Social Security Benefit Calculator]

5. Break-Even Point
When you're deciding whether to take a smaller check over a longer period or a larger check over a shorter period, don't forget to calculate your break-even point. This is the point at which larger monthly checks, started later, will begin to add up to more than the total of a smaller benefit that started earlier; it's the age where delaying receipt of Social Security retirement will start to pay off by maximizing the total funds you can receive during your lifetime. 

If you begin taking Social Security benefits at age 62, instead of your full retirement age (either 66 or 67), the break-even point will fall between ages 77 and 78. If you wait until age 70 to begin receipt of your benefits, then your break-even age will be between 82 and 83. 

Obviously, none of us know for sure how long we will live and need retirement income. The life expectancy of a 65-year-old American man is 84 years old; the life expectancy of a 65-year-old American woman is 87 years old. These ages are just statistical averages; one of every four 65-year-olds will live past age 90, and one out of 10 will live past 95, according to the Social Security Administration. 

6. Beyond Social Security: Other considerations when deciding on when to retire include sources of income. 
For military retirees, that starts with your retired pay. As corporate America continues to eliminate pensions, fewer retirees have a lifelong, cost-of-living-adjusted benefit. If you can maintain your desired lifestyle on your military retirement pay alone, delaying Social Security payments is the easy answer. 

However, many people require additional income to maintain their lifestyle. If that's the case for you, then you must decide whether to take Social Security retirement benefits, tap into your investment/retirement portfolio, or continue working.  

Most financial advisors tell clients they can safely withdraw 3 to 5 percent of their portfolio each year for the expected 40 years of retirement. If so, should you supplement your retirement income from your portfolio first to delay Social Security?  

If your spouse worked and achieved their own Social Security credits, Social Security survivor benefits will be of little concern. If your spouse did not earn their own Social Security benefits, and you - as the primary earner - predecease your spouse, their survivor benefit will be based on your Social Security benefit. (Your benefit now becomes their benefit.) If that is their only income, will that benefit enable them to sustain their current lifestyle? Did you select the Survivor Benefit Plan at retirement, or do you have a robust life insurance policy they can count on for income?   

A nonworking spouse can begin receiving spousal benefits (50 percent of their working spouse's full retirement age benefit) at their own full retirement age. Just as earned Social Security benefits are reduced if received early, spousal benefits are reduced if taken before reaching full retirement age.  

If you have the choice and are in good health, waiting to take your Social Security retirement (no later than age 70) could really pay off for your family. 

Related Content

About the Author

Capt. Paul J. Frost, AFC®, USN (Ret)
Capt. Paul J. Frost, AFC®, USN (Ret)

Frost co-leads MOAA's Financial and Benefits Education program and is also an accredited Veteran Service Officer (VSO), providing VA disability compensation claim and appeal information and advice to the military community.