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Social Security and Your Retirement: When?


Social Security was never meant to be the sole source of income for retirees, yet for many Americans it's an important source of funding during the retirement years. Here's a primer on the decisions you'll face when preparing to collect benefits.

Social Security Cards

By the time Generation Y and Millennials are ready to retire, Social Security will either be bankrupt and nonexistent, completely reformed and funded differently than it is today, or replaced by some other mechanism. But if you’re getting closer to retirement within the next decade or two, income from Social Security will be a big factor in your retirement income. Many people nearing retirement face the difficult decision of when to start collecting Social Security benefits—a big decision, indeed.

One important thing to note: Social Security was never meant to be the sole source of income for retirees. Most experts agree that a typical retiree will need to have somewhere in the neighborhood of 80% of the income they received while working to live in the manner they’ve become accustomed to, and for most, Social Security won’t get them close to that. Hopefully, you’re looking forward to income from a pension, retirement accounts, and other investments, and Social Security for you will be what it was designed to be—a supplement to your other savings.

When Can You Start Collecting Benefits?

Like many other financial and retirement-related decisions, when to start Social Security will depend on your circumstances and goals. You can start collecting Social Security benefits as early as age 62, but that doesn’t mean you should. If you start collecting at age 62, you will forego as much as 25% of the monthly amount you will receive by waiting until full retirement age.

While past generations could enjoy full eligibility for Social Security at age 65, everyone born after 1937 must make a bit of an adjustment. For example, anyone born between 1943 and 1954 will have to wait until age 66 to collect full benefits, and for anyone born after 1960, full retirement age is 67. But if you’re in a position to do so, waiting even longer can be beneficial. Your benefits will increase each year beyond the year you turn 67 until you reach age 70.

The Social Security Administration website is easy to use and is very helpful. The site includes a calculator here, and it also has:

  • Some background on Social Security
  • A basic benefit planner
  • Information on how and when to apply
  • A retirement benefits estimator you can use to figure out how much income you can expect at different ages based on the number of “credits” you earned over the course of your career; and
  • A section on disability benefits.

When Should You Start Claiming Benefits?

That’s a much more personal decision. If you are having trouble meeting basic expenses as your career winds down, you may not be in position to wait until age 70 to claim benefits. Although your benefit amount will be reduced, you will receive benefits sooner and you will receive more payments—if not more money—over your lifetime.

Waiting, if it’s feasible for you, can make a big difference. An example cited by the SSA goes like this: If you are eligible to receive a $1,000 per month benefit at full retirement age (which, again, depends on the year you were born), you will receive only $750 per month if you claim benefits at age 62. However, if you wait until age 70 to claim benefits, that monthly payment increases to a little more than $1,300.

What Else Should Factor Into Your Decision?

Health status, of course, may play a big role in your decision. A family history of excellent health and longevity is no guarantee that you’ll experience the same, but if you’re in generally good health and expect to be around to see great-great-grandchildren, factor that into your timeframe for collecting benefits. Consider also what level of benefits your spouse or partner will be entitled to. Working spouses who paid into Social Security will likely have earned their own benefit, but even if your spouse didn’t work, he or she can get up to one half of your benefit amount. Keep in mind that upon the death of your spouse, you will continue to receive the larger of your benefit, or your late spouse’s—but not both.

Unlike unemployment, you can continue to work, or rejoin the workforce, and still receive your benefit, although you need to look into the various income and tax factors you’ll need to know. Consult an advisor or a tax attorney, who can go over your situation and make some recommendations.

And, (although it may seem strange to be taxed on income that is raise through a tax you previously paid strangely), yes, as much as 85% of any Social Security benefit you receive may be taxable. That income will be added to any other income you earn to establish your total tax liability. Be aware that collecting benefits could, in some situations, push you into a higher tax bracket than you would otherwise occupy.

This can obviously complicate things, so schedule some time with a retirement plan advisor to go over your status, your goals, your planned retirement date and your decision on when to collect benefits.

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Victor J. Dzau, MD, gives expert advice
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