Social Security Income

When considering Social Security income, most people think it best to take the income as soon as possible.  In most cases, this would be starting their income at age 62.  While this strategy works for some, there are some other options to consider.

You can begin receiving individual Social Security benefits anytime between ages 62 and 70. Your benefit amount will differ, however, based on your full retirement age. This is based on your year of birth and ranges from age 66 for those born 1948-1954 to age 67 for those born in 1960+.

The maximum benefit depends on the age you start taking benefits. According to the Social Security Administration’s website (ssa.gov), if you start your benefits at full retirement age in 2021, the maximum benefit is $37,356 per year. However, if you start benefits at age 62 in 2021, the maximum benefit is $27,888. If you start your benefits at age 70 in 2021, the maximum benefit is $46,740.

Taking Social Security Income at 62: If you are eligible for Social Security retirement benefits, you can take benefits as early as age 62.  This will, however, permanently reduce the amount of income you could receive.  Those who have a family history of shorter life spans and those who need the money as soon as possible may want to select this option.

Starting your benefits early means any time between age 62 and your full retirement age. The early retirement reduction at age 62 ranges from 20% to 30% and is based on your birth year.  For example, let’s say you were born in 1950, qualify for a monthly benefit of $1,000 at age 66 (your full retirement age), and chose to begin receiving benefits at age 62. You would receive only $750 due to a 25% reduction.

Be careful.  If you choose to work while receiving Social Security benefits before your normal retirement age, your benefits could be reduced by $1 for every $2 you earn over the annual limit ($18,960 in 2021).  In the year you reach full retirement age, the benefit is reduced by $1 for every $3 you earn over a higher limit ($50,520 in 2021).  After you reach full retirement age, the benefits will continue in full regardless of how much income you earn.  Keep in mind that Social Security income benefits may be taxable to you based on your total level of income.

Waiting to Normal Retirement Age or later:  Depending on your birth year, your normal retirement age will likely be between 66 and 67.  The longer you wait, the greater the increase you will see in your Social Security income.  Someone born in 1943 or later will see his/her benefit increased by 8% for each full year benefits are delayed after reaching full retirement age. That increase will continue until you reach age 70. 

For those who have a family history of longer life spans and those who are more financially sound, waiting to your normal retirement age or until age 70 may make the most sense.

Survivorship & Divorce:  There is a survivorship benefit that pays a portion of the deceased spouse’s benefit to the survivor for the balance is his/her life.  The survivor typically needs to be age 62 or older to begin receiving the survivorship benefit.  Social Security may also provide a spousal benefit in the event of a divorce.

Other considerations: Before deciding when to take Social Security benefits, consider your entire financial picture.  Depending on your tax bracket, other income sources, and investment account mix, you benefit more in the long term by taking Social Security early.  It’s important not to evaluate your Social Security options in a silo-look at everything before making a decision.

For more information on Social Security benefits, visit www.socialsecurity.gov/planners. 

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual.  Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.