American workers are eligible to receive their Social Security retirement benefits starting at age 62 – but they won’t receive full benefits unless they wait a few years until their full retirement age. On the other hand, delaying benefits so that you don’t receive money until after reaching your full retirement age can increase the amount of benefits you receive.
When’s the right time to take retirement? Read on for a few factors to help you make this important decision.
Your Year of Birth
Social Security retirement benefits can be tricky to understand, because your “full” retirement age is determined by your year of birth. The federal government has a useful chart online to help you navigate benefits and retirement ages, but a few key numbers to keep in mind are:
- Age 66 is the full retirement age for people born in 1954 or earlier
- Age 67 is the full retirement age for people born in 1960 or later
- For people born between 1954 and 1960, add two months for each year above 1954; i.e. people born in 1956 reach full retirement at age 66 + 4 months
The early retirement age – 62 years old – is the same regardless of your birth year. However, your retirement benefits will be reduced to a different degree depending on when you were born. People born between 1943 and 1954 who take early retirement will see a 25% reduction in benefits. On the other hand, there’s a 30% early benefit reduction for people born in 1960 or later.
If you opt to delay retirement, you will receive an increase in monthly benefits. For example, people born before 1954 who don’t start receiving benefits until age 70 will get 132% of their eligible monthly benefit.
If you were married to your spouse for at least 10 years, you are entitled to spousal Social Security benefits. This is true even if you are now divorced from your partner. Spousal benefits may be up to half of the primary earner’s benefits, depending on the worker’s earnings.
Similar to primary earners, spouses can choose to start taking their benefits at an early retirement age of 62, if they wish. Benefits will be reduced by 30% for those born in 1954 or earlier, and 35% for those born in 1960 or later. If the primary earner opts for early retirement, the spouse’s benefits will also be reduced; whereas if the primary earner delays retirement, their spouse will also see a benefit rise.
Your Current Financial Situation
While it’s helpful to know the key dates, ages and percentages that determine a person’s retirement earnings, the most important step in deciding when to withdraw retirement benefits is to evaluate your own unique financial situation. Some good questions to consider are:
- Profession – If you’re still working at age 62 and happy to keep at it for a few more years, it’s probably a smart idea to delay your Social Security payout.
- Other income – After retirement, you might continue to earn income from side projects or investments. Again, as long as you’re covering expenses, there’s likely no need to start your Social Security benefits yet.
- Retirement accounts – You’re eligible to tap into your 401(k) retirement account without penalty after age 59½. Therefore, if you’ve left a job and find yourself in need of cash, it could be more prudent to dip into retirement savings instead of taking early Social Security payments.
- Inheritance – Are you expecting an inheritance or other family money to arrive within the next five to 10 years? In this case, the penalty of taking early retirement might not hit as hard in the future; especially if you need cash in the short term.
- Family obligations – Some people nearing retirement age may still be supporting family members’ education, housing or other needs. Taking early retirement could be one way to help, but remember that taking funds early means less money later on.
- Debt – Social Security earnings can be garnished if you owe federal taxes and federal student loans, so keep this in mind when choosing the right time to start taking retirement benefits.
- Assets – Retirement can lead to a change in assets; from downsizing your home, to purchasing a recreational vehicle, to dipping into investments. Do a thorough study of all assets as you consider when to start your retirement benefits.