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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Time Value and Inflation Adjustments

We determined the break-even point and the shortfall above without taking into account the time value of money: dollars you receive today are worth more than dollars you receive later. We have the luxury of figuring the break-even point this way because social security benefits are adjusted for inflation. The benefits you receive 20 years from now will be paid in "smaller dollars," but you'll also receive more dollars due to the inflation adjustment. You might say the time value of money is greater than the inflation adjustment, because you should be able to invest money in a way that provides an investment return greater than the rate of inflation. You're free to make that assumption and take it into account in your decisions, but we're keeping things simple by assuming that the time value of money is the same as the inflation adjustments. Using that assumption, the simple calculation described above provides us with a true break-even point.

Finding the Break-Even Point

The break-even point for starting benefits early or late, as opposed to starting them when you reach your full retirement age, depends on when you decide to begin receiving benefits:

  • If you begin receiving benefits more than three years before your full retirement age, the break-even point will be about 12 years (144 months) after you reach full retirement age.
  • If you begin receiving benefits three years or less before your full retirement age, the break-even point will be 15 years (180 months) after you begin receiving benefits.
  • If you delay receiving benefits for a period of time after your full retirement age, the break-even point depends on what year you reached age 62. See this page for details on the adjustment in your benefits if you think you may want to delay the start of your benefits even after reaching full retirement age.

Notice that the first rule above gives the number of months after full retirement age, and the second rule above gives the number of months after benefits begin. Both rules give the same result if your benefits start exactly three years before your full retirement age, because 15 years after the benefits begin is the same as 12 years after you reach full retirement age. As pointed out earlier, there is never a point where you see a sudden dramatic change by waiting one additional month.

Comparing Your Life Expectancy

Once you know the break-even point, it may be useful to know how that compares with your life expectancy. Many people underestimate their life expectancy in their later years. It may surprise you to learn that males who reach age 65 live another 16 years on average, and a woman at age 65 can expect to survive another 19 years. See this page for more about life expectancy, and a link to a table on Social Security Online.

What you'll find is that if you rely solely on these tables, men have a small incentive to wait (their life expectancy is somewhat beyond the break-even point) and women have a larger incentive to wait (their life expectancy is quite a bit beyond the break-even point). You may want to adjust for factors indicating you're likely to live longer or shorter than the average person your age.

Other Factors

So far we've been looking at the economic analysis as if your only concern is to maximize the total benefit you get from the system. This approach might make sense if you're well fixed financially, with enough money to cover all your likely needs so that the only concern is how much will be left for your children. Many people have other concerns. They may not be able to bear the thought of working another three years, and find that the only way out of that is to start taking social security retirement benefits before reaching full retirement age. Or they may simply feel it's important to have more money available now, when they're young enough to enjoy it. These are valid considerations, and only you can decide how much they should affect your decision. Understanding the economics of the decision can help you make an informed choice, but the economics don't have to control your life.

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