Deciding when to start collecting Social Security retirement benefits is one of the most crucial financial decisions you’ll make. The Social Security Administration (SSA) frequently hears the question: “What is the best age to start receiving benefits?” While SSA rightly notes that there’s no one-size-fits-all answer, statistical analyses suggest there is an optimal age for most Americans to maximize their lifetime retirement benefits. Let’s dive into these insights and discuss the considerations you should weigh to determine the best retirement age for you.
Understanding the Basics: Early, Full, and Delayed Retirement Ages
The earliest you can start collecting Social Security retirement benefits is at age 62. However, doing so comes with a significant penalty. For each month you claim benefits before your full retirement age (FRA), your monthly benefit will reduce by approximately five-ninths of 1% for the first 36 months and five-twelfths of 1% for any additional months. For those born in 1960 or later, the FRA is 67, which means that claiming at age 62 will reduce your benefit by about 30%.
Conversely, if you delay claiming benefits past your FRA, your monthly benefit will increase thanks to delayed retirement credits. For individuals born in 1943 or later, each year you delay adds approximately 8% to your monthly benefit, up until age 70. Therefore, by waiting until age 70 to start receiving benefits, your monthly payout will be 24% higher than if you had begun at age 67.
The Statistical Best Age: Waiting Until 70
A thorough study by economists David Altig, Laurence Kotlikoff, and Victor Yifan Ye, published in a working paper for the National Bureau of Economic Research (NBER), provides compelling evidence for delaying Social Security benefits1. Using a sophisticated tool named the Fiscal Analyzer, which accounts for lifespan uncertainty, cash-flow constraints, and federal and state tax implications, the study concluded that nearly every American should wait beyond age 65 to start claiming Social Security benefits. Specifically, over 90% of individuals would benefit most by waiting until age 70.
The data-backed recommendation is clear: if maximizing lifetime benefits is your primary goal, the best age to start collecting Social Security is 70. Despite this, only about 10.2% of Americans actually wait until then, leaving substantial amounts of money unclaimed.
Why Not Everyone Waits Until 70
While statistics favor waiting until age 70, personal circumstances often lead individuals to claim earlier. Here are two significant reasons why you might consider defying the statistical recommendation:
1. Health Considerations
You know your health better than any economist or statistical model. If you have a family history of shorter lifespans or suffer from health issues that could reduce your longevity, it might make sense to start collecting benefits earlier. The value of waiting diminishes if you don’t expect to live long enough to enjoy the increased benefits.
2. Lifestyle and Financial Needs
Money isn’t everything. Some people value the financial freedom to travel, pursue hobbies, or enjoy other activities in their early retirement years over a higher monthly benefit later in life. If you have sufficient savings to support yourself without relying on Social Security, or if you simply wish to enjoy your retirement sooner, claiming benefits earlier can be a perfectly valid choice.
The Trade-Off: Early vs. Delayed Benefits
The decision on when to start collecting Social Security boils down to a trade-off between the size of your monthly benefit and the total amount of benefits you receive over your lifetime. Here’s a simplified breakdown:
- Claiming Early (Age 62): You start receiving benefits sooner, which can be beneficial if you need the income or wish to enjoy early retirement. However, your monthly benefit will be significantly reduced, and you’ll receive less money each month for the rest of your life.
- Claiming at FRA (Age 67): You receive full benefits without any reduction. This middle-ground approach is a balanced option for those who can wait but don’t want to delay all the way until 70.
- Delaying (Up to Age 70): You maximize your monthly benefit amount, but you’ll need to rely on other income sources until you start receiving Social Security. This option is statistically best for increasing lifetime benefits, assuming you live into your late 70s or beyond.
Making the Right Decision for You
While statistics provide a clear answer for maximizing benefits, the best retirement age for Social Security is ultimately a personal decision. Here are some factors to consider:
- Financial Situation: Assess your current and projected financial status. Do you have other sources of income or savings that can support you while you wait for a higher Social Security benefit?
- Health and Longevity: Consider your health and family history. If longevity runs in your family, delaying might be advantageous. If not, earlier claiming could be more beneficial.
- Lifestyle Goals: Think about how you want to spend your retirement years. If traveling and engaging in activities while you’re younger and healthier is a priority, early claiming might align better with your lifestyle goals.
- Marital Status: Married couples can strategize to maximize their combined benefits. Often, it’s beneficial for the higher earner to delay claiming to increase the survivor benefit.
Conclusion: Balancing Statistics with Personal Circumstances
The best age to start receiving Social Security retirement benefits is a nuanced decision that balances statistical data with individual circumstances. While waiting until age 70 is statistically optimal for most people, your unique health, financial situation, and personal goals play a crucial role in determining the right time for you.
For instance, if you are in excellent health and have a family history of longevity, waiting until age 70 can maximize your monthly benefits and provide greater financial security in your later years. On the other hand, if you have health issues or a shorter life expectancy, it might be more beneficial to start receiving benefits earlier to take advantage of the support when you need it most.
Additionally, your financial situation, including savings, investments, and other retirement income sources, will also influence your decision. If you have sufficient resources to cover your expenses without tapping into Social Security right away, delaying benefits could result in higher payouts later on. However, if you need the income to support your daily living expenses, starting benefits earlier may be the more practical choice.
Personal goals and lifestyle preferences are equally important factors. Some individuals may prioritize enjoying their retirement years while they are still active and healthy, opting to take benefits earlier to fund travel or other activities. Others may prefer to continue working and delay benefits to secure a larger financial cushion for the future.
In conclusion, deciding when to start receiving Social Security retirement benefits requires careful consideration of various aspects of your life. Consulting with a financial advisor can provide personalized guidance tailored to your unique situation, ensuring that you make the most informed and beneficial decision for your retirement.
Remember, the SSA was correct in stating that only you can decide when to start collecting benefits. By considering both the statistical insights and your personal circumstances, you can make an informed decision that best suits your retirement aspirations.
Disclaimer
The information provided in this document is for general guidance and informational purposes only. It is not intended to serve as financial, legal, or any other professional advice. Each individual’s financial situation and needs are unique, and as such, specific personal and financial goals should be considered when making decisions about Social Security benefits. We recommend consulting with a qualified financial advisor or other professional who can assess your specific circumstances and provide personalized advice. The authors and publishers of this document are not responsible for any actions taken based on the information provided herein.
