Social Security – Early, Full or Late Retirement
Decisions About Social Security
It seems like such a simple question. When can I start taking Social Security?
And the related question. When should I take Social Security?
There are a number of factors to consider, and circumstances can vary dramatically. The timing for each individual will impact income for the rest of their lives, so it’s not a question to be brushed aside.
At a high level view, we basically have the following 3 options:
- Early Retirement
- Full Retirement
- Late Retirement
Here’s an overview of each of the options:
The earliest anyone can begin Social Security retirement is at the age of 62. If this is your choice, be aware that your retirement benefit will be reduced. How much you ask? It depends on your birth year. Click here for a table from the Social Security Administration illustrating different birth ages and the reduction in benefits at age 62. Notice your benefits are reduced and also spousal benefits are reduced.
The difference in income can be significant. Using a $1,000 retirement as an example for someone born in 1960, the SSA website shows their income would be reduced to $700, and the spousal benefit of $500 would be reduced to $325. In this example Full Retirement Age benefit would be reduced from a combined $1,500 to $1,025 about a 31% reduction. There can be good reasons for taking early retirement; it’s also good to understand the impact.
So, exactly when is Full Retirement Age? Again, it depends on the year you were born. Here’s another table from the Social Security Administration showing Full Retirement Age. It basically ranges from 65 to the current maximum of 67 years of age. This site has some nice graphs illustrating Full Retirement Age and also Benefit Payment as a percent of Full Benefit by age and birth year. Here’s an interesting quote from the site just referenced, “The adjustment will not be fair for people who expect––based on family history, say––to die earlier or later than actuarial tables indicate.”
Mortality Tables are Actuarial Tables indicating life expectancy and the probability of death as a function of age, sex, occupation and so forth. These are essentially averages and the problem is that we are individuals, not averages. But what if you like working and want to delay retirement? Or expect to live longer than average? In that case you might want to consider . . .
Again we turn the SSA website where we can see the effect of waiting past Full Retirement Age. If you wait until the age of 70, you will receive the largest benefit. Those that were born in 1943 or later, and wait until 70 to begin Social Security, will receive an 8% credit per year. (This amount no longer increases after the age of 70)
Using the calculator on the SSA website, we can see the effect of someone born in 1960 from early to late retirement. Early retirement at 62 means their benefit is reduced to 70.4% of their Primary Insurance Amount, and waiting until 70 means they receive 124% of their PIA. It’s a significant swing, and it affects spousal benefits as well.
The Bottom Line
In our introduction to this series of articles, we highlighted the fact these decisions will literally affect the rest of your life. The Social Security Administration says, “As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime.”
On average that is true, but as we pointed out, we are individuals, not averages.
In conclusion, there are many factors that will affect your individual decision about when to take Social Security. In our next article, we will consider the implications of What Happens If You Take Social Security Sooner . . . or Later?