When Should You Commence Social Security Benefits?
Assuming you've worked a sufficient amount of time and paid into the Social Security system (through FICA withholding on your wages or taxes on your net earnings from self-employment), you're eligible to collect Social Security benefits. You can start at:
Age 62. If you start at 62, your benefits will be permanently reduced by a certain percentage (depending on your normal retirement age). Normal retirement age is 65 for those born in or before 1937. But the age increases over time until it reaches age 67 for those born in 1960 and later. So, if your normal retirement age is 65, then benefits are reduced by about 20% if you start to collect at age 62. If you were born in 1938 so that your normal retirement age is 65 and 2 months, your benefits are reduced by 20.83% if you start to collect at age 62.
But the sooner you start to collect, the longer you'll receive benefits. For most people, this means you'll receive a greater amount overall than if you wait until the normal retirement age. For example, if you retire at 62 when the normal retirement age is 65, you'll have to live past age 77 to be better off than if you wait until 65 to commence benefits. (Remember that you would've collected benefits for an additional three years.) And this does not take into account whether benefits were invested (rather than spent), which could make starting benefits at 62 a better financial decision no matter how long you live.
Caution: If you continue to work (at a job or self-employment) and are under 65, benefits are reduced by $1 for each $2 of earnings above a set limit ($10,080 for the year 2000). If you're still employed full-time, you may not want to commence your benefits until age 65 because of the reduction for excess earnings for younger individuals.
Normal retirement age. If you were born after 1937 and before 1960, you can find your normal retirement age at the Social Security Administration Web site (www.ssa.gov). The change in the normal retirement age does not affect:
- Your ability to start collecting Social Security benefits at 62.
- Your right to start Medicare at age 65.
Age 70. You can increase your benefits by delaying their start until age 70. For example, if your benefits at 65 would be $1,000 a month, they would be about $1,300 if you wait until age 70 to start collecting. But again, you'd have to live to almost 87 just to receive the benefits would could have collected if you'd started at 65.
Bottom line: Your decision on when to collect benefits depends on your particular circumstances (whether you need the benefits to cover living expenses, whether you're still working, your health history, etc.). Review your benefits estimate statement sent to you by the Social Security Administration three months prior to your birthday. Then discuss your options with a financial professional.
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BARBARA WELTMAN is an attorney and a trusted professional advocate for small businesses and entrepreneurs. She is the author with such titles as J.K. Lasser’s Small Business Taxes and Smooth Failing, and she contributes regularly to American Express OPEN and SBA.gov. Her articles have appeared in the Wall Street Journal and U.S. News and World Report. Weltman is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at www.barbaraweltman.com and hosts radio shows and podcasts, including Build Your Business radio. She has been named one of the 100 Small Business Influencers in the U.S. for the third year in a row.
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