The optimal age to begin Social Security
Social Security provides a base of income for those that have paid into the system during their working life (or are or were married to one that did).
The Social Security program was created in 1935 by President Franklin D. Roosevelt.
Over the years, the program has changed from its inception and provides retirement and disability income to many. This includes benefits for those that are retired, disabled, widowed, and divorced. It also provides money to families in certain circumstances.
As of 2018, about 63 million people receive Social Security benefits in some form. The Social Security Administration (SSA) literally pays out billions (with a "B") of dollars to individuals each year. Many of whom rely on these payments to get by.
For most of our clients, Social Security provides only a part of the income they need in retirement. Lower income folks depend on these checks to get by as many of them have no other assets or income.
For this blog, I am going to focus on the retirement piece and not the disability side.
Generally speaking, to collect a retirement benefit on one's own work record, one must earn "40 credits" and the maximum one can earn is 4 credits per year. Therefore, if one has no gaps in working, in 10 years you have earned your 40 credits. Bear in mind, you have to wait until at least age 62 (the earliest one can collect on their own record) to collect and the amount of your check is predicated on your earnings while working. Unless you are caring for a child that is receiving benefits, different options are available.
Example. I have a client whose husband passed away and she was 45 at the time and caring for her three minor children. Based on what I said above, she would be eligible to collect a benefit, right? Well, technically, yes BUT I recommending she didn't as it would have caused her family to receive less money if she had. Confusing? You better believe it.
The name of this blog is "The Optimal Age to Begin Social Security Benefits" and to let you in on a secret, regardless of what you read online, there is no optimal age as it all depends on your particular circumstances.
These cookie cutter type articles can't factor in one's unique circumstances. Just the other day, a client sent me a screen shot of their 401K log in page that said they are underfunding their retirement. How do they know that? Well, they simply do a calculation based on what their current salary is, a guesstimate of when they will retire (age 65), and what their expenses will be in retirement. (Along with a guess on their life expectancy). What they don't know, is… if the participant in the plan has other assets, (maybe they have 5 million in an investment account) if they have a spouse or partner contributing to their household, what their true life expectancy is, etc etc.
Anyway, the same applies to Social Security as it is important to know a lot of information before making a decision.
One can generally collect as early as age 62 and many wait until age 70 (the maximum age) and some fall somewhere in between.
One magic age to keep in mind is one's full retirement age or FRA. This is based on your year of birth. I think our oldest client was born in 1929 so for her, her FRA was age 65. Our youngest client was born in 1995 so for her, it is age 67. My belief is the SSA will keep raising this "FRA" as time goes on to delay paying out benefits.
You may be wondering how SS comes up with your monthly benefit amount. This calculation (generally speaking) is based on the highest 35 years of earnings. These 35 years do not have to be consecutive. They simply drop the lower earning years and look at the top 35 years.
If one keeps working even after age 70 (The latest one can wait to collect), your monthly benefit could increase.
The reason I mention your FRA to be the magic year is that before that age, if one is still working and earning over a certain amount (Around 17k a year), their benefit could be reduced or eliminated. Once you hit your FRA, your earnings do not reduce your benefit.
I mentioned age 70 as being the latest one could collect a benefit. Here is where the cookie cutter articles come into play. By waiting until age 70 to begin a benefit, your monthly benefit at your FRA (let's say age 66) allows your benefit grows at about 8% simple interest a year. So, getting back to the "Optimal Age". If the following were true it could make sense to wait until age 70:
- You are pretty sure you will live into your 90's
- You don't "need" the money before age 70
- You are single
- You aren't a widow
- You aren't divorced
Now, if you are married, there could be other options that may be preferable than collecting right at age 62 or waiting until age 70.
To throw in another curve ball, if you were born on or before January 1, 1954 and are currently married, there are other options available that could help maximize your monthly benefit. Divorced to one or more people and married to one of them for at least 10 years? Other options may be available.
Sounds confusing? It can be and this blog post only scratches the surface.
When it comes to Social Security, the wrong decision can be irrevocable and you usually only have one chance to get this right.
We will help you determine the best time to collect Social Security based on YOUR situation.
I'm here to help.
All the best.
Rick Fingerman, CFP®
617-630-4978
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.