Social Security: An Individualized Question
One of the most asked and misunderstood questions posed by adults in their 60s is the question of when to draw social security. Complicating this question is the fact that the answer to it is individualized, meaning the answer is different depending on one’s own situation and circumstances.
To better understand the best answer for you, it is important to know the age at which you can get full social security benefits, and this depends on the year in which you were born. Following is a list of birth years, coupled with the age at which full benefits would begin for the person born in that year:
| Year Born | Age when Full Benefits Begin |
|---|---|
| 1938 | 65 and 2 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960-Later | 67 |
Reducing Your Benefits by Drawing Early
The earliest you can start receiving social security benefits is age 62. However, if you start that early, your social security benefits are reduced—how much depends on when your full benefits begin. If, for example, your full benefits age begins at 67, by taking social security at 62, your benefits will be reduced by about 30%. (If your full retirement age—the age at which you would receive—is 66, then drawing at age 62 would reduce your benefit by 25%.) To further illustrate this reduction of benefits, following is the percentage of reduction of benefits, for the person whose full benefits begin at age 67, if social security is taken early:
| Age Beginning Social Security | % of Benefits Reduction |
|---|---|
| 62 | 30% |
| 63 | 25% |
| 64 | 20% |
| 65 | 13.3% |
| 66 | 6.7% |
(See reduction of social security benefits to see the schedule of reduction for spouse’s social security benefits. Compute the percentage of benefit you will receive on the date you would like to draw your social security.)
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Calculating Your Social Security Benefits
To calculate what you might draw, create an account or sign in at the social security administration site. After plugging in your information, you will see the estimation of your social security benefit based at various ages of drawing your social security. (That estimate can change if you continue working and, for example, earn more money per year than what the estimate is based on.) Once you understand your individualized numbers, you can begin to make a decision on when you will draw your benefits.
Drawing Early May Benefit You
As we have seen, drawing your social security early will reduce your benefits, depending on how early you draw them. However, you also need to factor the extra payments you will receive by drawing early—to see if it is worth waiting until you obtain the full social security benefit.
For example, suppose you will receive your full benefit at age 66, because you were born in 1954; and suppose that benefit is $2,000 per month. If you were to draw your social security benefit at age 62 (this year), you would receive 75% of $2,000, which would be $1,500. Yes, this would be $500 short of your full retirement benefit, but you would be drawing social security benefits for four years longer than if you wait till full benefit. On those four years (or 48 months), you would draw $72,000 before reaching age 66. Based on that calculation, you would have to live until age 78 to make up the difference, if you waited until age 66 to draw your benefits.
How Long Will You Live?
So, one consideration is: How long will you live? If your family has a history of living into their 80s, then it may make sense for you to wait till age 66 (or whenever you will receive your full benefit); otherwise, you may consider drawing your social security when you first become eligible.
However, before you make that decision, there is another critical factor to consider. Do you plan to continue working? If so, you may be penalized for drawing your social security benefits early.
The Penalty for Drawing While Working Fulltime
If you are younger than the full retirement age (the age at which you would receive your full social security benefit) and make more than the annual earnings limit, your benefit will be reduced. Though this limit changes each year, for 2016, that limit is $15,720. So, if you draw your social security early, for every $2 you earn above that annual limit, your benefit payments will be reduced $1. (In the year you reach full retirement age, the social security administration will graciously only deduct $1 for every $3 you earn above the annual limit, and it only counts the earnings prior to the month you reach your full retirement age.)
However, if you wait until your full retirement age to draw your social security benefits, you may earn an unlimited amount of money without reducing your benefits. This means that, if you are still working and have not yet reached your full retirement age (unless you really need your social security benefits) it may be wise to wait until you retire before drawing your social security benefits.
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Is There a Benefit to Wait until 70?
Furthermore, if you delay your benefits beyond full retirement age, the amount of benefit you will receive will increase. For example, if your full retirement age is 66, and you wait until age 68 to draw social security, your benefits will be 16% higher than they would have been had you drawn at age 66. (However, there is no benefit for waiting beyond age 70 to draw. So, even if you continue to work fulltime beyond age 70, making a comfortable salary, there is no reason to wait beyond age 70 for you to draw your social security benefits.)
Critical Questions to Help You Decide
Therefore, if you are facing the big question surrounding social security of when to draw your benefits, ask yourself these questions:
How is my health, and what is my family history of mortality? (In other words, how long do you think you will live?)
When do I want, or need, to retire? (If you want, or need, to retire prior to your full retirement age, it may be wise to take your social security benefits early.)
Am I in dire need of extra money? (If so, you may need to draw social security early.)
The Right Answer for You
Your answers to these questions will determine when you should draw social security benefits. In considering the question of when to draw social security, there is no one right answer for everyone; there is only the right answer for you.
