When Should You Start Social Security Income?
This is a really straight forward question and if the math were the only
factor, here’s the straight forward answer: wait until full retirement
age to take your social security income. Below is the table of full
retirement ages and the reductions for starting social security income payments
early.
No matter what your full retirement age
is, you may start receiving social security income benefits as early
as age 62.
Note: If
you were born on January 1st of any year you should refer to the
previous year in the chart below. |
Year
of Birth |
Full
Retirement Age |
Age
62
Reduction Months |
Monthly
% Reduction |
Total
% Reduction |
Monthly
% Reduction (spouse) |
Total
% Reduction (spouse) |
1937
or earlier |
65 |
36 |
.555 |
20.00 |
.694 |
62.50 |
1938 |
65 and 2 months |
38 |
.548 |
20.83 |
.679 |
62.92 |
1939 |
65 and 4 months |
40 |
.541 |
21.67 |
.667 |
63.34 |
1940 |
65 and 6 months |
42 |
.535 |
22.50 |
.655 |
63.75 |
1941 |
65 and 8 months |
44 |
.530 |
23.33 |
.644 |
64.17 |
1942 |
65 and 10 months |
46 |
.525 |
24.17 |
.634 |
64.58 |
1943--1954 |
66 |
48 |
.520 |
25.00 |
.625 |
65.00 |
1955 |
66 and 2 months |
50 |
.516 |
25.84 |
.617 |
65.42 |
1956 |
66 and 4 months |
52 |
.512 |
26.66 |
.609 |
65.84 |
1957 |
66 and 6 months |
54 |
.509 |
27.50 |
.602 |
66.25 |
1958 |
66 and 8 months |
56 |
.505 |
28.33 |
.595 |
66.67 |
1959 |
66 and 10 months |
58 |
.502 |
29.17 |
.589 |
67.08 |
1960
and later |
67 |
60 |
.500 |
30.00 |
.583 |
67.50 |
- Monthly and total percentage reductions are approximate
due to rounding. The actual reductions for the worker are .555 or 5/9
of 1% per month for the first 36 months and .416 or 5/12 of 1% for subsequent
months.
- The maximum spouses benefit is 50% of the social
security income benefit the worker would receive at full retirement age.
The monthly % reduction for the spouse does not include that automatic
50% reduction. Percentage reductions are approximate due to rounding.
Source: http://www.ssa.gov/retirechartred.htm
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So let’s take this hypothetical example:
You were born in 1945 and just turned age 62 in 2007. Your full retirement
age is 66. You are projected to receive $1500 social security income monthly
at that time. However, you could start your social security benefits
now at age 62 and receive $1125 (25% reduction). So do you wait and
get $1500 monthly at age 66 or take $1125 now at age 62? Assuming that
your personal “discount rate” for money is hypothetically 6% and
that you view yourself as having average life expectancy, you would come out
$3,000 ahead by starting payments at age 62 (this calculation can be done using
any financial calculator or spreadsheet with a present value function and the
above assumptions). In other words, using these assumptions, it will
only make a $3,000 difference over your expected life time.
Because there is more to life than your life expectancy and discount rate,
here are the other factors to consider:
Issue |
This
would argue to…. |
If you think you can earn
more than 6% annually |
Take the money now |
If people in your family
tend to outlive the average life expectancy |
Take the money later |
If you need the money to
live on now |
Take the money now |
If you are married and your
spouse is also dependent on the payments |
Takes a lot more figuring – call
us on this one |
Your tax bracket will be
lower later |
Take the money later |
Will you have earned income
prior to your full retirement age forcing you to forfeit some of your
social security benefit |
Take the money later |
Once you start to consider several of these factors at once, you may get
a headache. Unfortunately, there is no blanket answer as to when to begin social
security income payments to maximize the benefit. This is an issue you
can calculate and a retirement
calculator is provided on this site.
What about your spouse? Read the next article:
Social
Security Benefit for Spouses
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