Deciding When to Collect Social Security

Social Security is the principal source of retirement income for about two-thirds of older Americans.¹ Its importance to so many people may explain why deciding when to start collecting Social Security benefits can be difficult. Starting benefits at age 62, full ("normal") retirement age, or age 70 has different income consequences that will last throughout retirement.

Now or Later?
Workers who have earned enough credits can begin collecting monthly Social Security benefits at age 62 — but they receive a reduced amount, currently about 75.8 percent of full benefits; eventually, this percentage will drop to 70 percent.

Full benefits are available at "full retirement age," which ranges from 65 to 67, depending on year of birth. Those born prior to 1938 reached this stage at age 65. But an individual born in 1950 will have to wait until age 66, and someone born in 1960 or later will have to wait until
age 67. 

By delaying benefits up to age 70, people can receive a higher benefit amount to reflect delayed retirement credits.

Comparing the Numbers
In 2004, the average monthly benefit for someone retiring at age 62 is $1,422. This compares with $1,784 for someone retiring at full retirement age (currently, 65 and four months), or $2,111 for someone starting benefits at age 70.²

At first glance, it might seem that waiting until age 70 may be the wisest decision, because a 70-year-old retiring today would receive up to $689 more per month than the reduced benefit amount at age 62. That could add up to $8,268 a year! However, by waiting, the individual would not have received eight years worth of reduced monthly benefit payments, which would add up to $136,512 ($1,422 monthly benefit times 96 months).³ The table on page 1 illustrates the breakeven point at various ages.

Deciding when to begin receiving Social Security benefits has long-term implications. Only after carefully considering a variety of factors — including age, health, and financial situation — should you begin taking out of a system in which you've spent much of your career contributing a percentage of your salary.

1) AARP, 2002
2) Social Security Administration, 2004
3) This hypothetical example is based on 2004 figures, and the calculation does not reflect automatic benefit increases. Actual situations will vary.

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