Planning for retirement requires a lot of time, work, and sometimes foresight, and one of the most essential yet difficult issues to answer is what is the optimal age to begin collecting Social Security.
According to the Social Security Administration, nearly 9 in 10 people aged 65 and older were receiving Social Security benefits as of June 2024, implying that many Americans did not wait until full retirement age (FRA), the age at which you are eligible to receive 100% of your expected Social Security benefits, before beginning to collect. A person’s FRA changes based on the year they were born.
The current brackets for your FRA are as follows:
– Born between 1943 to 1954: 66
– Born in 1955: 66 and 2 months
– Born in 1956: 66 and 4 months
– Born in 1957: 66 and 6 months
– Born in 1958: 66 and 8 months
– Born in 1959: 66 and 10 months
– Born 1960 or later: 67
This may be one of the reasons why it is so difficult to decide when to retire; because FRA is not the same for everyone, and the earliest age at which you can claim benefits is 62 years old, some people do not see the value in waiting, especially if you have health issues that prevent you from working or, conversely, if you are wealthy enough not to work.
Who is entitled to collect Retirement benefits
Employees earn Social Security “credits” by paying taxes on their wages. To be eligible for retirement benefits, most persons must earn 40 credits, which normally takes around ten years of work. The monthly benefit amount is based on your top 35 earning years; if you worked less years, zeroes are included in your average, lowering your average and final benefit amount.
Because the amount of benefits you receive is totally reliant on the payroll taxes you paid, working longer and in a higher-paying career or position will result in you receiving more benefits when the time comes.
According to the SSA, the predicted average monthly Social Security retirement payment was $1,907 in January 2024, but this varies per person and depends on a variety of circumstances, such as when they began claiming.
For every month you claim before your FRA. Your benefit decreases by approximately 5/9 of 1% for the first 36 months and 5/12 of 1% for any subsequent months. So, if your FRA is 67 and you claim at 62, you’ll receive approximately 30% less.
According to the IRS, “For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), the benefit is reduced by 30%.” This maximum reduction is determined as 36 months multiplied by 5/9 of 1 percent and 24 months multiplied by 5/12 of 1 percent.
Conversely, if you wait beyond your FRA to begin benefits, they will increase due to “delayed retirement credits” (DRCs). Your reward increases by a set percentage for each month you wait, with a maximum age of 70. For those born in 1943 or later, the increment is 8% every year. Waiting until 70 ensures the maximum profit, but waiting after 70 adds no money.
The ideal age for collecting benefits does not exist. It is entirely dependent on personal circumstances, and while completing the math is crucial, considering your living situations is far more vital.
Working when ill or when you don’t need to can lower your quality of life in the long run, but if you enjoy your job, taking a step back without completely leaving the workforce may be enough to allow you to work for longer and receive the most benefit possible.