Jonathan Peterson - Social Security For Dummies

Remembering your spouse

Working for greater security

Making your decision on when to start collecting

I know people who are sick of their jobs, fed up with the demands of the work world, and ready to begin collecting Social Security the very first day they can get it. I also know people who love their jobs, see themselves as forever young, and are pained even to think about collecting retirement benefits. Where do you fit on the spectrum?

Of course, the decision on when to start collecting Social Security is personal. Your priorities and needs, your spouse’s needs, your financial resources, your health, and your expected longevity all can shape your attitude about collecting Social Security.

Your decision on when to begin collecting Social Security retirement benefits may be the most important financial decision you ever make. Starting too early can cost you tens of thousands of dollars. Worse, jumping the gun may hurt the most in your final years, when it’s too late to do anything about it.

In this chapter, I fill you in on the most important factors to consider in order to make the right decision for you. There is no one right answer. My goal is for you to make the decision about when to collect Social Security fully armed with all the information you need.

A key consideration in choosing a start date for collecting Social Security is something called your full retirement age. The Social Security Administration (SSA) gives you a window of several years before and after your full retirement age in which to begin collecting your retirement benefits, starting at 62. In the following sections, you find out how to determine this age (based on your year of birth) and how it affects the amount of your monthly benefit.

Your first question is probably this: How much Social Security am I going to get? The answer: It depends. The first step is knowing your full retirement age. If you collect Social Security before reaching your full retirement age, you’ll get less each month — potentially a lot less, for the rest of your life. If you collect Social Security after reaching your full retirement age, you’ll get more each month.

Your full retirement benefit is the amount you get if you wait until your full retirement age to begin collecting. But what the SSA calls your full benefit is not the biggest benefit you can get. You can actually get a lot more than your full benefit by waiting until you’re 70 to begin collecting — 32 percent more if your full retirement age is 66, and 24 percent more if it’s 67. The SSA uses your full benefit as the starting point when it decides how much you or your dependents will receive (see the next section for details).

The earliest age at which you can start collecting retirement benefits is 62, and the latest is 70. Your full retirement age falls somewhere in between. Table 3-1shows a person’s full retirement age based on his or her year of birth.

TABLE 3-1Full Retirement Age Based on Year of Birth

* If you were born on January 1, refer to the previous year. Full retirement age may be slightly different for survivor benefits.

After you figure out your full retirement age (see the preceding section), you can get a ballpark idea of your monthly benefit. Currently, the average retirement benefit is $1,503 per month (this is being written in January 2020), but benefits go much higher, depending on your earnings history and when you begin collecting.

It’s easy to get at least a rough estimate of your retirement benefits. Just use one of the SSA’s online calculators — the Social Security Quick Calculator at www.ssa.gov/oact/quickcalc or the Retirement Estimator at www.ssa.gov/estimator . They can give you projected amounts for retiring at different ages, such as 62, waiting for your full retirement age (according to Table 3-1), or delaying all the way until 70. You also can get estimates customized to your personal situation by using AARP’s Social Security Benefits Calculator at www.aarp.org/work/social-security/social-security-benefits-calculator . See Chapter 6for more details on calculating your benefits.

If you use the SSA’s Retirement Estimator, you’ll see roughly how much Social Security you could get, especially if your earnings don’t skyrocket or crash between now and the time you retire. If you haven’t yet done so, you can use the Retirement Estimator as a starting point to think about how much money you can count on in retirement. (I talk more about planning for retirement in Chapter 14.)

Online calculators are not the only tools you can use to get an idea of your benefit amount. You also can sign up for a personal “ my Social Security” account with the Social Security Administration at www.ssa.gov/site/signin/en/ . This online statement offers estimates of your future benefits for retirement, for your survivors, and for disability. For an in-depth discussion of “ my Social Security” accounts, turn to Chapter 7.

Whether the Social Security numbers look small, large, or in between, remember that Social Security is meant to be just one part of your financial foundation.

As I mention earlier, you stand to get much more money each month if you can delay collecting Social Security past your full retirement age. For example, if you were born between 1943 and 1954, your Social Security payment at 62 is 25 percent lower than if you wait until 66 (your full retirement age). If you hold off to age 70 — four years past your full retirement age — the benefit balloons by 32 percent.

These differences can add up to real money over the years — or decades. Consider the following example: