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Did you know you don’t have to start taking Social Security when you retire? You may benefit by delaying Social Security retirement benefits. In this article, we explore Social Security start age and how to determine your ideal start age.
You can start taking Social Security retirement benefits anytime between the ages of 62 and 70. The longer you wait, the larger your monthly checks. Once you begin taking Social Security, your monthly benefit amount is set. There are no take-backs or do-overs. The age you start taking Social Security permanently sets your monthly benefit amount.
This creates a dilemma: when should you begin taking Social Security?
Here are two questions most people struggle with:
There’s a key milestone known as the break-even age – the point at which the timing of your Social Security benefits balances out. If you leave this world before reaching that age, you would have collected more Social Security benefits by starting at 62. But if you live beyond it, delaying benefits until age 70 ultimately pays off.
Before we continue, it’s important to point out these caveats:
The break-even age is when you will have received the exact same sum of Social Security retirement benefits regardless of whether you started at age 62 or 70 (or any point in between). This is critical because it’s the single most important factor in determining your ideal age to start taking Social Security.
The break-even age is 80, and it’s the same for everyone. This is easily proven by reverse-engineering the math used by Social Security to determine each individual’s retirement benefits.
Let’s look at an example to help illustrate this point. Meet Bob, a 60-year-old working professional trying to decide when he should start taking Social Security. He accesses his online account at ssa.gov and finds that if he starts Social Security at age 62, he will receive $2,500 in monthly benefits. If he waits until he is 70, he will receive $4,300 in monthly benefits.
The chart below is based on Bob’s Social Security benefits. The blue line represents the lifetime sum of $2,500 monthly benefits Bob will receive if he starts taking Social Security at age 62, and the orange line represents the lifetime sum of $4,300 monthly benefits he will receive if he starts taking Social Security at age 70. Where the two lines intersect is the break-even age, 80. The chart is driven by the spreadsheet below which sums Bob’s lifetime Social Security benefits beginning at age 62 and 70.
| AGE | START 62 | START 70 |
|---|---|---|
| 62 | $30,000 | |
| 63 | $60,000 | |
| 64 | $90,000 | |
| 65 | $120,000 | |
| 66 | $150,000 | |
| 67 | $180,000 | |
| 68 | $210,000 | |
| 69 | $240,000 | |
| 70 | $270,000 | $51,600 |
| 71 | $300,000 | $103,200 |
| 72 | $330,000 | $154,800 |
| 73 | $360,000 | $206,400 |
| 74 | $390,000 | $258,000 |
| 75 | $420,000 | $309,600 |
| 76 | $450,000 | $361,200 |
| 77 | $480,000 | $412,800 |
| 78 | $510,000 | $464,400 |
| 79 | $540,000 | $516,000 |
| 80 | $570,000 | $567,600 |
| 81 | $600,000 | $619,200 |
| 82 | $630,000 | $670,800 |
| 83 | $660,000 | $722,400 |
| 84 | $690,000 | $774,000 |
| 85 | $720,000 | $825,600 |
| 86 | $750,000 | $877,200 |
| 87 | $780,000 | $928,800 |
| 88 | $810,000 | $980,400 |
| 89 | $840,000 | $1,032,200 |
| 90 | $870,000 | $1,083,600 |
If we look all the way out to age 90, we see that Bob receives a lifetime total of $870,000 in Social Security benefits if he starts at age 62, and $1,083,600 if he waits until age 70. Those figures may be a bit large to wrap our heads around, but ask yourself this: would you rather receive $2,500 each month or $4,300? Remember how happy you were to get a 5% raise? That’s a 72% raise.
One of the great mysteries of life is how long we will live. No one knows for certain, but we can estimate our longevity based on family history. Do you have parents or grandparents who lived into their 90s? Or is the opposite true – a history of family members departing this world at a younger age?
Generally speaking, you have to go with the odds. Based on your family history, you need to assess whether you think you will live beyond the Social Security break-even age of 80. If you don’t think you will make it to 80, you may be better off starting Social Security as early as age 62. On the other hand, if chances are good that you will live beyond 80 years of age, you may benefit by delaying Social Security up to age 70.
The second issue to consider when determining your ideal Social Security start age is the amount of retirement savings you have. You don’t want to cut it too close. That is, you shouldn’t base your retirement plan on barely making it to your Social Security start age.
Let’s look at another example to help illustrate this point. The two charts below represent retirement savings over time for Wendy who retires at age 64. You can see retirement savings increasing during her remaining working years, then declining in retirement.
In the first chart, she delays Social Security start age to 70. As you can see, with no Social Security coming in for six years, her retirement savings are reduced to almost zero. The second chart shows the result when she starts taking Social Security at age 67. Her retirement savings only have to tide her over for three years until she starts taking Social Security. For Wendy, starting Social Security at age 67 is the better option. It provides some cushion in her plan to account for market fluctuations and other unknowns.
In order to discover your ideal Social Security start age, you need to have a retirement plan. There are two ways to go about establishing a retirement plan. You can sit down with a certified financial planner, or you can use retirement planning software.
Retirement planning software is the less costly option. Don’t be intimidated by the thought of self-directed retirement planning. If you can answer a question, you can use retirement planning software.
Once you have entered details about your saving and spending habits, you are ready to discover your ideal Social Security start age. It can be as easy as moving a slider like the one shown below:
These charts are from Eggstack, an easy-to-use online retirement planning tool. It’s a comprehensive program that you can try for free. If you are struggling with questions such as when to retire, when to start taking Social Security, and how much you need to save, Eggstack can answer those questions.
Photo credit: Pixabay
Eggstack News will never post an article influenced by an outside company or advertiser. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.
This article is for informational purposes only and is not financial advice or any other type of advice. Eggstack makes no representation to the validity, accuracy, completeness, or suitability of purpose of any information presented in this article.
