How Taking Early Social Security Affects your Benefits

When you choose to initiate your Social Security benefits early, you will receive less per month for the rest of your life than if you had waited.  However, it doesn’t follow from this that cumulatively you’ll receive less than the full benefits you would have received had you waited.  You may end up getting more, less, or the same amount.  But let’s take a closer look at how this works.

Leaving aside disability benefits, the earliest you can commence your Social Security retirement benefits is age 62.  Each year you delay from there increases your monthly payout by about 8%.  So if you would get $1,000 a month for life if you retired today, you will get about $1,080 a month for life if you wait a year to start your benefits.  Once you hit age 70, there is no further advantage to waiting.  If you wait to start receiving benefits until age 73, you’ll get the same amount per month as if you’d started at age 70.

In addition to those key ages of 62 and 70, there is a point between them, designated the “full retirement age,” that can also come into play in determining benefits, but only if you continue to work after initiating benefits.  Full retirement age is gradually being raised from 65 to 67, so when precisely you cross this line will depend upon your year of birth.

If you work and make less than $14,160 (currently – this amount changes regularly) in a year, then it doesn’t matter.  But for anything you make over $14,160 while already receiving Social Security benefits, if you are short of your full retirement age your benefits will be reduced by half that amount.  For example, if you worked and made $18,160, you would receive $2,000 less in benefits that year.

In most cases, this factor makes it a no-brainer to delay starting your benefits until at least full retirement age, assuming you’re still working and earning a substantial amount of money.  If you’re barely going over the $14,160, then perhaps not, but if you’re earning $20,000, $30,000 or more, rarely would it make sense to simultaneously draw Social Security.  You’re just costing yourself money.

Just to reiterate, once you get to full retirement age, this is no longer a factor.  Then you can work and earn $20,000 or $200,000 in a year and it won’t adversely affect your benefits.

So let’s move beyond the work income factor and look only at cases where it doesn’t matter, which would be when you’re between full retirement age and 70, or anywhere between 62 and 70 and making less than the $14,160.  In order to get the maximum benefits you can, should you start your benefits earlier or later?

If we’re considering just your Social Security benefits in isolation, then it comes down to an actuarially matter of how long you expect to live and draw benefits.  The system is set up so that for the average person, they’ll get roughly the same amount in benefits whenever they start.

But that’s the average person, not everyone.  For example, if based on your current health, the age your parents and grandparents died, etc., you figure your life expectancy to be about 72, it makes no sense to wait to start drawing benefits.  Yes, you’ll get more per month if you start taking benefits at age 70 instead of 62, but you’ll also only get those benefits for two years instead of ten years, so you’ll come out way behind.

On the other hand, if you’re destined to live to 100, you’ll do much better by waiting to start your benefits.  30 years of high benefits works out to a lot more than 38 years of low benefits.

You can use the Social Security website to plug in your own numbers and make your own calculations, but roughly speaking the “break even” point for most people comes in their late 70s.  If you die before your late 70s you’ll have received more benefits by taking early Social Security, if you die after your late 70s you’ll have received more benefits by delaying taking Social Security, and if you die in your late 70s you’ll get about the same total benefits either way.

But that’s looking at the Social Security benefits in isolation.  There are other factors to consider.  We’ve already seen how the calculations can be affected by work income over $14,160 (which provides a reason to delay until at least full retirement age).

Another factor is other retirement accounts you may have.  Because if you don’t take early Social Security, you’ll still have to get money from somewhere.  If it’s from an IRA or other investment, then you have to look at the pros and cons of drawing money from there.

So it isn’t just “Do I take $1,000 a month [or whatever your figure would be] in early Social Security at age 62 or wait so I can get higher monthly benefits later?”  It’s “Do I take $1,000 a month in early Social Security at age 62 and avoid having to take that from my other retirement savings, or do I take that $1,000 from my savings each month and wait so I can get higher monthly benefits later?”

The value of leaving that money in your investments will of course depend on the interest rate you expect to return, the tax implications, and more, but most analysts say that if you do indeed have other retirement savings like this, it shifts the considerations a little more in favor of drawing your Social Security benefits early and leaving those other investments to keep growing.  The “break even” point, then, moves up another three years or so.  Now instead of making sense to start your benefits at age 62 unless you expect to die before your late 70s, it makes sense to start your benefits at age 62 unless you expect to die before age 82 or so.

Of course our analysis could get vastly more complicated by factoring in inflation, how much you’ll need or be able to enjoy money at different age levels, and many, many other things.  And on an individual basis, you should be considering as many of these relevant factors as you can as you think through your decision.

But as a general statement, we can at least conclude that many people will not miss out on receiving their full benefits by taking early Social Security, but will in fact receive the same or more than they would have if they’d waited.


“How Work Affects Your Benefits”

“Retirement at 62: Is Receiving Social Security Early Worth It?”

“Retirement Benefits By Year of Birth”

“A Retirement Mistake Boomers Should Avoid”

“Taking Social Security Early Can Be Expensive”

“When to Start Receiving Retirement Benefits”