When is the Best Time to Start Collecting Social Security Benefits?

Signed by President Franklin Roosevelt in 1935 in response to the Great Depression, the Social Security Act started as a welfare program for the elderly. Today, it’s become a multi-billion dollar source of retirement and disability income.

 

Although it won’t cover the full amount of your earnings—only replacing 37% of income for the average retiree—when you start collecting Social Security benefits could be the difference of several hundred dollars per month.

Key Takeaways

  • Your full Social Security benefit depends on your birth year, how much you earn over the course of your life, and the age you decide to start collecting. 

  • There are three common start times to consider—early, full retirement age, or delayed.

  • Conduct a self-evaluation by asking yourself five questions or use other tools to calculate your highest possible benefits.

How Social Security is Calculated

Your full benefit amount is known as a primary insurance amount (PIA). It’s calculated by taking your 35 highest earning years and indexing them using the SSA’s formula

 

The PIA represents the amount you would receive if you retire at your full retirement age (FRA), which is determined by your birth year (see the chart below). If you were born after 1960, your FRA is 67. While this isn’t the earliest you can start collecting Social Security benefits, it is the age at which you can receive your full benefit amount. 

 

For simple math, let’s say that Jane was born in 1961. Her FRA is 67, and her PIA is $2,000 every month. 

 

We’ll follow Jane through all three scenarios. 

Collecting Social Security Benefits Early

The earliest Jane can enroll in Social Security is 62. If she does, her benefit amount is reduced by 30% a month, and her $2,000 becomes $1,400. The reduction isn’t a penalty but rather an adjustment to accommodate for more monthly checks over her lifetime. 

 

The reduction also carries over to spousal benefits. Spousal benefits are 50% of the worker’s PIA, which is $1,000 in Jane’s case. If Jane starts collecting at 62, her spouse’s benefit would be reduced an additional 25% to $750 a month. That’s a full 37.5% reduction from the full benefit amount! 

Source: SSA

 

Why would anyone want less money per month? Well, there are a few reasons. 

 

  • Jane may need the income. She can still work (with caveats) and start collecting her benefits, so those monthly checks could significantly supplement her income. 

  • Poor health could affect her life expectancy. If she doesn’t expect to collect checks for long, why not start collecting early and take advantage of the money now?

  • Jane and her spouse may not need the income and decided to invest the benefit amount, help their children, or donate it.

  • Jane may not wish to withdraw money from her portfolio, especially in a bear market.

 

While most Social Security decisions are permanent, you can reverse your early enrollment decision within the first 12 months and pay back any benefits you received. 

Reaching Your Full Retirement Age

Jane has made it to 67, and she qualifies for her full benefit amount. Her spouse and qualifying survivors can also receive their full benefit.

 

Although many correlate their retirement year with Social Security benefits, the two are mutually exclusive. You may decide to retire from your job before collecting Social Security, and you don’t need to retire from work when you start collecting. But, if you plan to retire at 67, be sure to keep these key healthcare details in mind.

 

  • You may be contributing to an HSA through your company’s health plan. You can’t contribute to your HSA once you enroll in Medicare.

  • Medicare eligibility starts at 65, and delaying enrollment without an eligible reason will result in higher premiums for life. 


Learn more about How an HSA Can Bridge the Medicare Coverage Gap in our recent article. 

Waiting Until 70

Jane’s other option is to wait until she’s 70 to start collecting benefits. For every month past her 67th birthday, she earns an extra 2/3 of 1% or an extra 8% per year. By delaying benefits until she’s 70, Jane could increase her PIA by 24%!

 

Retirement Age

Delayed Retirement Credit

Monthly PIA

68

8%

$2,160

69

16%

$2,320

70

24%

$2,480

 

A couple lines of fine print:

 

  • The delayed credit percentage varies by birth year

  • The credits stop accumulating after 70. 

  • Spouses can’t receive delayed retirement credits.  

 

Delaying collecting Social Security benefits may be the best choice if you don’t immediately need the income, are in great health, and plan on a long retirement. 

 

If you’re the higher wage earner between you and your spouse, consider delaying Social Security to fully maximize benefits. The SSA may even recalculate your PIA if you work past 67.

 

But, there may be tax implications to maxing out your benefits. You could pay taxes on up to 85% of your benefits if your combined income exceeds $34,000 for individuals or $44,000 if filing jointly. 

 

The Social Security Administration defines “combined income” as

 

Combined income = your adjusted gross income + nontaxable interest + half of your social security benefits.

 

If you end up paying taxes, you can elect to split the amount over quarterly payments or have it withheld from your monthly check. 

5 Considerations Before You Start Collecting Social Security

Back to the original question: when is the best time for you to start collecting social security benefits? Walk yourself through these five questions. 

1. How long do you plan on working?

Your first step is determining your monthly income requirements and how Social Security benefits can improve your cash flow. 

 

Since your PIA depends on your 35 highest earning years, working even one extra year could increase your benefits. If you retire a few years earlier, you may want to consider building up delayed retirement credits to ultimately boost your monthly benefit. Don’t forget to factor in your spouse’s work plans and maximize the higher earner’s benefits. 

2. What is your life expectancy?

It’s an awkward question but a necessary one. If you’re in good health, how much longer could you delay benefits to receive a larger check? If you have good reason to expect a lower life expectancy, enjoy the extra income from early enrollment to make a few memories. 

 

The best retirement plan ensures you have money to last the rest of your life, for however long that is.

3. Are you eligible for benefits on someone else’s record?

Remember, full spousal benefits are up to 50% of the primary earner’s benefit (if you both start collecting at full retirement age). If benefits off of your work record are lower than what you would receive as a spousal benefit, the SSA will make up the difference. 

 

Let’s bring Jane back. Say her spouse is the primary earner, and the benefit would be $2,000. If Jane were to collect on her work record alone, it would be $750, which is less than half of her spouse’s benefit. To remedy that, the SSA would kick in an extra $250, so Jane could collect the full $1,000. 

 

Keep in mind that if you’re divorced, you can still claim benefits off of your ex-spouse’s work record should you meet all the eligibility requirements. 

4. Will other family members or dependents rely on your benefit?

In this case, enrolling early may be detrimental to your spouse or other survivors who will depend on this income source after you pass. Survivor benefits inherit any reductions to your PIA. They won’t receive any of the delayed retirement credits, either. When considering estate planning with your Social Security, you’ll want to find that Goldilocks number to ensure you pass on as much as possible. 

5. What are your other sources of income?

Knowing you have sufficient distributions or income will make it easier to delay Social Security. If you don’t have another income stream, Social Security will give you a set amount per month. 

Need a Full Social Security Benefits Analysis?

At Metanoia, we use this tool to help our clients determine the best strategy for maximizing their social security benefits. You can adjust scenarios and rules to customize your retirement plan. 


Reach out to schedule a free consultation and start putting your plan together.