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With some exceptions, American workers and their employers contribute FICA taxes throughout their working life. Eligible workers qualify for Social Security Retirement Income monthly benefits that continue to death or as survivor benefits to spouse and qualified dependents. Each Social Security eligible person can elect to start their monthly benefit payments as early as age 62 and as late as age 70.
Starting benefits before “full retirement age” (age 66 for people born in 1943 and as low as age 65 for older individuals) results in a reduction or discounting of monthly benefits. Starting benefits later than full retirement age result in monthly benefits being increased for each year of delay, up to age 70.
The ability to elect when to begin retirement income benefits requires that every eligible person decide – and it can make a big difference in your monthly payment. There is no simple rule of thumb to help you decide when to start benefits. Many personal factors must be considered.
What Happens to Your Monthly Benefit?
Actual monthly Social Security benefits are based on each worker’s earning history, standard life expectancy assumptions and the age at which you start receiving benefits. Simply stated, start early and receive reduced benefits, start later and receive higher payments.
For every year before full retirement age, there is a about a 7% reduction, so start at age 62 and receive 25% less than if you start at age 66 – but you will collect benefits longer. For every year after full retirement, there is an 8% increase in monthly payments, so start at age 70 and receive 32% more than if you start at age 66 but forgo payments for several years. So if we use an estimated full retirement monthly benefit of $1,000 at age 66, you would receive $750 monthly at age 62 and $1,320 monthly at age 70, or almost twice the monthly payment if taken at 62.
Just the Facts Please
Let’s list the major factors that affect your decision and their influence on the “right” answer for you.
At the extreme, you’re 62, unemployed and broke with few prospects to find a good job. Your health is poor and possibly declining. Let’s not overanalyze this. You probably want to start reduced early retirement benefits at age 62. All other things being considered, your need for cash will probably trump all other considerations.
If immediate cash needs are not so extreme, and you are in reasonably good health, you may want to delay benefits. For low income older people and people unable to work due to disability, there are other protection plans such as Supplemental Security Income (SSI); and public welfare plans including Temporary Assistance for Needy Families (TANF).