Many people think they understand Social Security: You retire, and the government simply starts sending you checks.
Well, that’s true — up to a point. But the reality is that Social Security is much more complex than most people realize. There are a number of different rules and regulations around how and when you get paid, and as you approach retirement, you have quite a few choices. That’s where working with a financial advisor like the team at Price Financial Management can come in handy.
Take it from our advisors who have seen it all–here is what you need to know about your different options for receiving Social Security.
When Do I Become Eligible?
You become eligible to receive Social Security once you hit what the government defines as “full retirement age.” That used to be 65 years old, until Congress passed a law in 1983 gradually raising the retirement age to 67. For everyone born in 1960 or later, their full retirement age is 67 years old. (Anyone born in the 1950s or earlier has either already hit full retirement age or will do so by 2025.)
Now here’s where it gets a little more complicated…
It’s also possible to elect to take your Social Security benefits early — before you hit full retirement age. In fact, you’re allowed to begin taking Social Security as early as 62 years old, though this comes at a cost. (More on that later.)
At the same time, you can also choose to wait to receive Social Security until you’re 70, forgoing initial years of payments in exchange for a larger monthly payout once you start getting benefits. So how do you know when it’s the right time for you to start collecting Social Security? Understanding those benefits and drawbacks can shed some light on the situation.
What Are the Financial Ramifications?
The calculation for your monthly Social Security payout is complex. At a basic level, your benefit is calculated according to an average of your 35 highest-earning working years. Note that there is a maximum benefit amount, which changes each year according to inflation. In 2024, the maximum monthly benefit at full retirement age is $3,822.
Your decision to take Social Security early, at full retirement age, or at age 70 affects how much monthly income you’ll receive. If you take benefits starting at 62, your benefits become permanently reduced for the rest of your life — and your monthly check could be up to 30 percent lower than if you’d waited until full retirement age to receive your benefits.
By the same token, if you wait to receive your benefits until age 70, you’ll end up receiving larger monthly payments. Each year you wait to take benefits, you’ll receive an 8 percent increase. In other words, if you don’t take benefits for the three years between 67 and 70, you’ll ultimately end up with a 24 percent increase in your monthly benefits.
When Should You Choose to Receive Benefits?
The decision to receive Social Security early, at full retirement age, or later will depend on your particular life circumstances. If you’re in a situation where you need the money immediately, it may make sense to elect to receive benefits early. (Though we would always recommend coming up with a retirement plan years ahead of time, which can help you avoid this scenario.)
It's also worth thinking about your own health and life expectancy. While it may feel strange to think in these terms, if you’re in poor health, it could make sense to begin receiving benefits sooner, in order to maximize the number of years you receive payments.
Another variable to take into account is spousal benefits. You’re allowed to take up to 50 percent of a spouse’s Social Security benefit, which could be a prudent move if you are the lower-earning spouse. Consider this scenario: Let’s say your benefits are $500 a month while your spouse’s are $2,000; you could elect to receive $1,000 a month from the spousal benefit instead, increasing your family’s total income. Keep in mind, though, that if you elect to receive your own benefits early, this will ultimately reduce the percentage you’re eligible for through the spousal benefit as well.
Planning for your retirement starts here.
As you can see, there’s quite a bit to take into account when it comes to when and how you elect to receive your Social Security benefit. At Price Financial Management, we can help you devise a long-term financial plan that makes sense for you.
Get in touch with us today to get started.