When should you start collecting Social Security benefits?

You do not have to wait until you are 67 to start receiving benefits. Yes, the full retirement age is currently 67, but you can start collecting benefits as early as 62.

When you decide to start collecting your Social security benefits is something that can affect your finances for the rest of your life. And with the big cost of living adjustment increase come 2023, you might want to know if it’s a good idea to start collecting your benefits now. We’ll answer all of these questions and more below.

There are pros and cons whether you decide to retire early or wait a few more years. The best place to start your decision is to look at your current financial situation, including any other money you’ve saved over the years through your 401(k), IRA or other retirement investments to determine what is best for you.

We spoke with an expert and considered advice from the Social Security Administration to help you determine the best time to collect your benefits. To learn more about Social Security, find out how you can pause payments to get more money later.

How are Social Security benefits calculated?

The Social Security Administration uses your average monthly earnings up to 35 years of work history to calculate your “primary insurance amount,” or the benefit you’ll receive at full retirement age. This calculation includes income up to the “taxable maximum” amount, which is $160,200 for 2023.

After determining the number of years worked, Social Security chooses the years with the highest earnings, taking inflation into account, takes the sum of those earnings, and then divides it by the total number of months worked during of those years. The resulting average is then rounded down to the next lower dollar amount.

Your income is then indexed so that future benefits are reflected in the current standard of living to help offset inflation. This number of “average indexed monthly earnings” is then used to calculate your monthly benefit. The maximum Social Security benefit for someone at full retirement age in 2023 is $3,627.

If you are the spouse or ex-spouse of someone who paid into Social Security through taxes, you may be eligible for a portion of its benefits. You can choose to receive this share or a payment based on your own work history, whichever is greater.

The Social Security Administration provides calculators to estimate your future benefits. Create a My Social Security account online is a great way to see your current benefits or expected payments when you plan to retire.

piggy bank with money

When is the best time to collect your Social Security benefits?

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When should I start receiving Social Security benefits?

You can start receiving your Social Security benefits no earlier than age 62, although you will receive a lower amount than you expected. If you wait until full retirement age (67 or older for people born in 1960 or later), you can raise more money, but over fewer years. However, everyone’s situation is different. The Social Security Administration says “there is no single ‘best age’ for everyone, and ultimately it’s your choice.”

Katherine Tierney, senior retirement strategist for client needs research at financial services firm Edward Jones, suggests asking yourself these questions: When do you want to retire and when can you afford to retire?

When you can afford to retire depends on the lifestyle you want, as well as where you’ll live in retirement, Tierney said. It also depends on how much you’ve saved for retirement and how much you’ve contributed to your 401(k). You should also consider whether you will have other forms of retirement income, such as a part-time job or a pension. Your health and life expectancy are also other factors to consider.

Should you wait until you’re older to get a bigger payment? Or take early retirement with a smaller payment?

Deciding whether to retire early and claim your benefits sooner or wait a few more years might be a matter of concern if you are approaching retirement age.

“Social Security can act as insurance against living longer than expected, and it provides some protection against inflation since your benefit is adjusted for increases in the cost of living,” Tierney said. “The longer you or your spouse expect to live, the longer it may make sense to wait to claim your Social Security benefit.”

But just because you decide to wait to claim your benefits doesn’t mean you have to delay your retirement, she explained. However, you need to make sure you have income from your 401(k) or other investments so that you can pay your living expenses if you delay claiming your benefit.

However, if you rely solely on Social Security benefits to pay your retirement expenses, waiting until you retire and claiming your benefits at a later date might be a better choice. You will receive more money each month and you will have more time to save for your retirement.

In addition, if you choose to retire early, your benefits will be reduced for each month before full retirement age. For example, if you were born in 1960 or later and you retire at age 62 with a retirement benefit of $1,000 per month, your payment would be reduced to $700 (or a 30% reduction).

On the plus side, that’s still $700 that you wouldn’t otherwise receive during that time if you weren’t receiving your Social Security benefits. So you could benefit from collecting payments over a longer period of time.

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Is it possible to run out of money after early retirement?

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If you retire early, could you run out of money?

Although you won’t run out of Social Security benefits (although there’s a threat that the entire Social Security money pool will start to dwindle), you could run out of your 401(k) or other savings. of retirement. However, you can help avoid this by being conservative with your withdrawal rate if you retire early, Tierney said.

She recommends regularly monitoring your expenses and 401(k) withdrawal rate so you don’t outlive your assets. Forgoing an annual increase in spending or reducing spending – especially when the market is down or inflation is highas we are now – can help you avoid depleting your retirement savings.

For more information, here is the Social Security Payment Schedule and how to see your benefits online.

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