Social Security benefit timing can have big impact

February 1, 2007
Traudy F. Grande, CFP?

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John J. Grande, CFP?

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John S. Grande, CFP?

Q Could you explain whether it is generally better to take Social Security benefits at 62 or wait until 65 or even 70?

Q Could you explain whether it is generally better to take Social Security benefits at 62 or wait until 65 or even 70?

Today, a retired worker who is fully insured can elect to start receiving benefits at any time between age 62 and 65 (or even later). Benefits can start as early as age 62, but if you choose this option, benefits are permanently reduced by 20% or more, depending on the year you were born (Figure 1).

Before addressing the inherent problems with this empirical question, let's look at some of the factors and considerations, starting with when you actually can take full benefits depending on your age. The accompanying chart shows that the earlier one was born, the younger he or she can begin to collect full benefits (Figure 2).

Further, for those born after 1937, normal retirement age is being extended. Normal retirement age currently is 65, but due to the Social Security amendments, full benefit age will be increased gradually in two stages, eventually reaching 67 in 2027. Thus, the early bird will receive even more checks than the retiree who bides his or her time for full benefits.

If the early bird also did not need the benefit income and chose to invest instead of spending the checks, then the investment income would partially offset the reduced yearly benefit as well as extend the catch-up period for the normal-retirement-age collector. Sounds like most people would opt to be early birds.

Delaying retirement benefits beyond normal retirement age until age 70 also will increase the size of the benefit due to a credit provided by the Social Security Administration for such patience. Further, for those born after 1937 who choose to begin receiving benefits at age 62, the reduction-in-benefits penalty is further stiffened, from 20% to an eventual 30% in 2022. The hare will feel the tortoise closing even quicker.