At what point should you start collecting your Social Security benefits? The answer may not be as easy as you think.

Many people don’t realize that the exact age they are when they begin taking Social Security benefits determines the percentage of benefits they will actually receive.

The key to the answer lies in what is considered your “full retirement age.” It used to be that you could retire “early” by collecting reduced benefits starting at age 62 or you could wait until you were 65.

But now, depending on the year you were born, you will not reach your full retirement age until between 65 and 67. People born in 1937 or earlier reach “full retirement age” at 65. From 1938 on, it rises gradually to age 67.

You even have an option of delaying your benefits past your full retirement age, thereby locking into an even higher monthly check. If you plan on working during retirement, you may want to delay benefits, as your earnings could negatively affect the amount. However, there are also instances where taking early benefits will most likely pay off.

If you start collecting at the earliest opportunity — age 62 — you’ll receive a permanently reduced benefit, but you could make out better overall if you live long enough to offset the reduction.

If you wait until your full retirement age, you can collect 100 percent of your benefit.

Determining which option is right for you depends on a number of variables, including your life expectancy, financial picture and — according to economists at the Center for Retirement Research — gender and marital status.

Put it off

Generally, financial advisers say it’s best to postpone Social Security benefits as long as possible, at least until your full retirement age as determined by the Social Security Administration, or SSA.

Early Social Security can cost you

If your full retirement age is 67, your Social Security benefit is reduced by:

  • About 30 percent if you start collecting at 62.
  • About 25 percent if you start collecting at 63.
  • About 20 percent if you start collecting at 64.
  • About 13.3 percent if you start collecting at 65.
  • About 6.7 percent if you start collecting at 66.

Source: Social Security Administration

“Social Security is like longevity insurance,” says Brent Neiser, a Certified Financial Planner and director of the National Endowment for Financial Education. “It’s a stream of payments that will not stop throughout your life, so delaying your benefits to keep those payments as large as possible forms a helpful base to your retirement plan.”

In fact, he notes, those who undersaved for retirement should use whatever means possible to postpone their Social Security benefits until after their retirement age to help boost future income.

If your full retirement age is 66, for example, you’ll receive 108 percent of your monthly benefit by delaying Social Security until age 67.

If you wait until age 70, it jumps to 132 percent.

“You can use personal savings to help bridge the gap, but ideally you should plan to work a little longer (and delay Social Security),” says Neiser. “Not only does that save you money — since you’re not drawing money down from your retirement accounts — but you’re potentially adding more to it. Plus, you’ll collect larger Social Security benefits (down the road.)”

Another benefit of working longer? Medicare.

Aging Americans become eligible for federal health insurance coverage at age 65.

“If you stop working at age 62 and lose health insurance, you have to get supplemental insurance to bridge the gap until you turn 65 and Medicare kicks in,” says Neiser.

Paying for such insurance can quickly deplete your savings.

Do you plan to work during retirement? If so, you have another incentive to delay collecting Social Security. Earning too much at a job after you begin collecting Social Security can negatively affect your benefit.

If you are under full retirement age for the entire year, the government deducts $1 from your benefit payment for every $2 you earn above the annual limit. For 2007, that limit is $12,960.

In the year you reach full retirement age, your benefit is reduced by $1 for every $3 you earn above $34,440 (in 2007) until the month you reach full retirement age.

You will also owe Social Security and Medicare tax on your earnings, even if you are already receiving benefits.

Early benefits can pay off

Although it’s often wise to postpone Social Security until at least retirement age, there are instances where taking early benefits pays off despite the reduced monthly check, says Neiser.

“No one can predict how long you’ll live, but if you’re facing a potentially significant reduction in life expectancy and are short of income, taking Social Security early may be appropriate,” he says.

Just be sure you budget for a reduced benefit.

If your full retirement age is 67 and you begin collecting Social Security at age 62, for example, your benefits are reduced by about 30 percent.

The reduction drops to 25 percent if you wait until you’re 63, and so on.

The Social Security Administration provides a chart of retirement benefits by birth year.

Married women are also good candidates for claiming early benefits, according to a 2005 study by economists at the Center for Retirement Research at Boston College.

That’s because they are likely to outlive their husbands, and such women then become eligible to receive the greater of either their benefit or their late husband’s benefit.

However, this scenario is only valid if the husband does not claim his benefits early, the authors point out. By not claiming early benefits, the husband effectively increases the monthly benefit his wife eventually receives upon his death.

What’s your break-even?

To better determine when you should start drawing Social Security, it may help to calculate your break-even age.

Your break-even age occurs when the total value of higher benefits (from postponing retirement) starts to exceed the total value of lower benefits (from choosing early retirement.)


Here’s an example: If you are eligible to collect a reduced $900 benefit at age 62 plus 1 month, and your benefit would increase to $1,251 at age 65 and 10 months, your estimated break-even age is 75 years and 5 months.

If you expect to live beyond that age, it would be financially worth your while to delay your retirement.

You can find your break-even point using the Social Security Administration’s calculator.

When it comes to calculating a start date for Social Security benefits, however, there’s no one right age that’s appropriate for everyone.

Consider your own financial need, health and post-retirement plans before making the call.

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