As retirement approaches, making informed decisions about Social Security becomes crucial. This article explores the factors to consider when deciding when to take Social Security benefits and compares the impact of taking Social Security at age 65 – compared to 62, and 70. By understanding the full retirement age, individuals can make choices that optimize their Social Security benefits.
Explaining the Full Retirement Age
The full retirement age (FRA) is the age at which individuals can receive their full retirement benefits.
For those born in 1960 or later, the FRA is 67, reflecting increased life expectancies.
The table below shows the full retirement age chart based on the year of birth.
| Year of Birth | Full Retirement Age |
|---|---|
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 |
Factors to Consider When Deciding When to Take Social Security
There are the factors to consider when deciding when to start taking Social Security benefits:
Life expectancy
Consider your health and family history to estimate how long you may live in retirement.
Financial needs
Evaluate your current financial situation and determine if you need immediate income or can afford to delay benefits.
Personal circumstances
Take into account factors such as other sources of retirement income, spouse’s benefits, and potential inheritance plans.
Break-even analysis
Calculate the age at which the higher benefits from delaying outweigh the total benefits from starting early.
Cost-of-living adjustments
Recognize that annual increases in benefits can affect the long-term value of starting early or delaying.
Investment opportunities
Assess potential investment returns and how delaying benefits might allow your assets to grow.
Risk tolerance
Consider your comfort level with market fluctuations and uncertainty in other retirement income sources.
Spousal benefits
Understand how your decision may impact the benefits available to your spouse or surviving spouse.
Longevity risk
Account for the possibility of outliving your savings and how Social Security can provide a stable income stream.
Tax implications
Determine how taking benefits at different ages may affect your overall tax situation.
Is Taking Social Security at 65 a Mistake?
Based on the information provided, taking Social Security at 65 may not be the most advantageous decision for maximizing benefits.
The full retirement age (FRA) is an important consideration, and for individuals born in 1960 or later, the FRA is 67.
Claiming benefits at age 65 would result in a reduced benefit amount compared to waiting until the FRA or even further, until age 70.
By claiming benefits at age 65, individuals would receive lower monthly payments due to the early claiming penalty.
On the other hand, delaying benefits beyond the FRA can lead to increased monthly benefits, with a potential 8% increase per year until age 70.
Factors to Consider
Factors such as life expectancy, financial needs, income, and personal circumstances should be taken into account when deciding the optimal age to start receiving Social Security benefits.
It is advisable to calculate the break-even point, consider the impact of cost-of-living adjustments, and evaluate the potential benefits of delaying Social Security.
Ultimately, the decision of whether taking Social Security at 65 is a mistake depends on an individual’s unique situation and goals.
Seeking guidance from a financial professional and considering all relevant factors can help make an informed decision that aligns with long-term financial security in retirement.
7 FAQs About Taking Social Security
Here are the most frequently asked questions about taking Social Security
Can I start receiving Social Security benefits before my full retirement age?
Yes, you have the option to start receiving Social Security benefits as early as age 62.
However, it’s important to note that your benefit amount will be reduced compared to what you would receive at your full retirement age.
How much will my benefits be reduced if I claim at age 62?
If you choose to claim Social Security benefits at age 62, your monthly benefit amount will be approximately 30% less than what you would receive if you waited until your full retirement age.
This reduction is permanent and will continue throughout your retirement.
Is it possible to increase my benefits by delaying Social Security?
Yes, delaying your Social Security benefits beyond your full retirement age can result in higher monthly payments.
For each year you delay, your benefit amount can increase by about 8% until you reach age 70.
This delayed retirement credit can significantly boost your benefits over time.
How do I determine the break-even point for delaying benefits?
The break-even point refers to the age at which the cumulative higher benefits from delaying Social Security surpass the total benefits received by starting early.
Calculating the break-even point involves considering factors such as your full retirement age benefit, the reduced benefit amount if you claim early, and your life expectancy.
It’s a personal calculation that can help you determine if delaying benefits is financially beneficial for you.
Are there income limits or penalties for working while receiving Social Security?
If you decide to claim Social Security benefits before reaching your full retirement age and continue working, there are income limits and penalties to be aware of.
In 2021, if you earn more than $19,560 per year before reaching your full retirement age, Social Security will withhold $1 in benefits for every $2 earned above this limit.
It’s important to consider these penalties and evaluate whether it’s financially beneficial to claim benefits while working.
Will my Social Security benefits be subject to federal income taxes?
Yes, depending on your income level, a portion of your Social Security benefits may be subject to federal income taxes.
Up to 85% of your benefits could be taxable if your combined income (including half of your Social Security benefits, tax-exempt interest, and other income) exceeds certain thresholds.
It’s advisable to consult with a tax professional to understand the specific tax implications based on your situation.
Should I consult a financial professional before making a decision about Social Security?
Consulting with a financial professional is highly recommended when making decisions about Social Security.
A financial advisor can provide personalized guidance based on your unique circumstances, help you understand the implications of different claiming strategies, and assist in optimizing your Social Security benefits within the context of your overall retirement plan.
Their expertise can ensure that you make well-informed decisions aligned with your financial goals and retirement objectives.
Taking Social Security at 65 Summary
We hope this post on taking Social Security at 65 was helpful.
Questions?
If you still have questions, you should leave a comment below.
However, what may be an even greater help is to join our FREE Facebook members group about Making Sense of Social Security Benefits.
It’s a very active group with some really smart people who love to answer any questions you may have about Social Security Benefits.
Also, from time to time, our team of editors drops in to contribute and answer questions.
Finally, be sure to check out our other articles about Social Security and Disability Benefits, including:
