Choosing When to Start Receiving Social Security Retirement Benefits


You can begin taking retirement benefits whenever you choose between age 62 and age 70.

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Break-Even Point

The reduction you must accept when you take your benefit early is a permanent reduction. For example, if you take your retirement benefit 3 years early, the benefit will be 80% of the amount it otherwise would have been, not just for those three years, but for the rest of your life. You receive three additional years of benefits (that's 36 more monthly payments than you would have received), but all your payments will be smaller, both before and after full retirement age. If you live long enough, the larger payment you'll receive if you retire later will catch up with the smaller but more numerous payments you'll receive if you retire earlier. The point when the total benefit you get is the same either way is the break-even point.

Let's look at an example where your monthly benefit is $1,000, and you decide to take your benefits 3 years early. Your twin has the same monthly benefit but waits until full retirement age. You both have the same earnings history, and you both stop working at the same age, so the only difference in this example is the date you start to receive social security retirement benefits.

  • After three years of benefits you've received 36 payments, but they were reduced 20% so the payments were $800 each, for a total of $28,800. So far, your twin has received nothing at all, so you're $28,800 ahead of your twin.
  • After one more year you have another $9,600 in benefits, but your twin received $12,000 in that time span. You're still ahead of your twin, but you lost $2,400 of your advantage.
  • Every year after that you lose another $2,400 of your advantage until you reach a break even point, 15 years after your benefits began (or 12 years after your full retirement age). At that point, you and your twin have received the same number of dollars.
  • After that, your twin pulls ahead by $2,400 a year, from that point until the end of your life. For example, if you and your twin end up living 20 years after the date you start receiving benefits, your twin will end up receiving $12,000 more in total retirement benefits than you (five additional years times $2,400 per year).

As a result, you might consider starting to receive social security retirement benefits now if you think you have less than 15 years to live, and lean more toward waiting if you think you have more than 15 years to live. There are other factors to consider, of course, and we'll get to them shortly.

Effect of Waiting

Before we move on, let's see how the situation would change in the above example if you wait another year and one-half to begin receiving benefits, so that you're starting just 18 months before full retirement age instead of three years early. What happens if you and your twin (who starts to receive benefits at full retirement age) live to the same age as in the previous example?

  • Your break-even point will be 18 months later. As a result, your twin will be pulling ahead of you for only 42 months, not 60 months as in the previous example.
  • Your benefit adjustment is 10%, not 20%. That means your twin gains $100 per month on you, not $200 per month. The total shortfall at the time of your death is $4,200, far less than the $12,000 in the previous example.

What we learn from this example is that a delay in starting your benefit reduces the risk of having a large shortfall if you have the "bad" luck to live a long time after your benefits start. If you don't have an immediate need for the money and think you may survive a long time, you should think twice before starting benefits early.

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