You may have heard that Americans are eligible to begin receiving Social Security retirement benefits at age 62. That’s true, and it’s led many people to wonder why they shouldn’t begin taking those benefits just as soon as they become eligible. After all, isn’t waiting to collect the same thing as leaving money on the table?

The truth is a bit more complicated than that. While collecting early might make sense for a few people, it’s generally considered a good idea to wait. Here’s why.

How Social Security works

Throughout your working life, you pay taxes to the federal government to support the Social Security program. The money you put in is not earmarked for your individual retirement. Instead, it’s used to pay current retirees, with any remainder going into a general trust fund. Higher earners pay more Social Security tax than lower earners. Then when it’s time for you to retire, you begin receiving a certain amount every month via direct deposit as a replacement of some portion of your income. That payout will be higher for high-income workers and lower for low-income workers.

The general expectation is that people will start collecting their Social Security benefits when they reach full retirement age. Because the government is bound to meet its obligations toward existing retirees, it has a natural incentive to keep as much money as possible in its trust fund. It therefore penalizes citizens who begin withdrawing their benefits before full retirement age, and rewards those who wait later than full retirement age to begin receiving benefits.

What is full retirement age?

The age at which you’re eligible to receive full Social Security benefits depends upon your year of birth. Generally, the longer ago you were born, the lower your full retirement age:

Full Retirement Age by Birth Year (Social Security Administration)

Birth Year                                                                                       Full Retirement Age

195566 and 2 months
195666 and 4 months
195766 and 6 months
195866 and 8 months
195966 and 10 months
1960 and later67

“Should I take Social Security early?”

Again, Americans do indeed become eligible to begin receiving Social Security benefits at age 62. However, as the chart above makes clear, 62 is not considered full retirement age for anyone, and therefore the government disincentives people from choosing that option by paying out reduced benefits to those who don’t wait for full retirement age. For every month shy of your full retirement age when you start taking benefits, the government reduces the dollar amount by a small percentage (roughly 0.5%). And by selecting early benefits, you’re not just agreeing to reduced benefits temporarily, until you reach full retirement age, but locking yourself into that reduced rate throughout your whole retirement.

The Social Security Administration offers the following illustration of the reduction of income associated with early benefits, based on a hypothetical $1,000 full-retirement benefit:

Early-Retirement Payout on a Hypothetical $1,000 Full-Retirement Benefit

Birth Year                                                         $1,000 Benefit Reduced To…

1960 and later$700

As you can see, the very best scenario, for those closest to full retirement age (born 1943-1954) is to lose a full 25% of their $1,000 benefit by choosing to collect it early. Projecting that same hypothetical benefit out over a 30-year period (up to age 92), you’d be sacrificing $90,000 ($250 per month x 12 x 30).

So should anyone do it?

Yes. If you’re truly in dire financial straits, there really is no reason not to collect the benefits you’ve earned by paying into the system throughout your working life. You might be facing astronomical medical bills, disability, chronic unemployment, a long-term family emergency or some other circumstance that makes it impossible for you to earn an income. In such cases, taking early Social Security benefits could be a lifesaver. You can even continue working while receiving benefits before reaching full retirement age. However, you’ll lose $1 in benefits for every $2 you earn above the threshold of $22,320. Depending on your specific circumstances, this might still be worthwhile. You’ll just need to calculate your income beyond that threshold to determine whether the early benefit makes sense, while of course accounting for the future lost income due to the reduction in benefit.

If you’re in more comfortable circumstances and just looking to get your hands on some extra income in your early 60s, taking Social Security early is a bad financial move, since you’re robbing your future self of a more substantial income stream.

Delaying benefits

Waiting for full retirement is wise, but what’s even wiser, if you can afford to do it, is to wait a few years past full retirement age before you start taking your benefit. Then you can receive even more each month. A percentage is added onto your benefit for each month beyond full retirement up to age 70. Consider the following data on delaying your benefit:

Increase for Delaying Benefit Beyond Full Retirement Age

Birth Year                                                                                12-Month Rate of Increase

1943 or later8.0%

A calculator

For a more personalized idea of the consequences of various choices regarding when you begin receiving benefits, the Social Security Administration provides an online calculator that lets you see what different scenarios would look like for you. Try entering different choices into it to help you decide what will be best for you.

An easy rule of thumb

Given the advantages of waiting beyond full retirement age and the disadvantages of beginning to withdraw benefits before full retirement age, it’s easy to see why the general rule of thumb is to delay collecting your benefits for as long as possible up to age 70. As with all such rules of thumb, however, there are exceptions. If you’re in a tight spot and considering taking early benefits, talk to a financial advisor about what the best move is for you.

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