Ever since 1937, American workers and employers have been paying Social Security taxes and collecting benefits after meeting eligibility criteria. Today, approximately 61 million Americans collect their monthly retirement benefits.
In 1983, the United States Congress passed further legislation to gradually increase the age for beneficiaries to get their full benefits. Initially, a person had to be 65 years old to receive full retirement benefits. Today, if you were born before 1954, you can get full benefits when you are 66. Being born in 1955 means you must be 66 years and two months old to get the full benefit rate. For people born in 1960 or later, full benefit age is currently 67 years of age.
Eligible individuals can opt for early retirement and receive benefits at age 62, or they can wait until the age of 70 to maximize their benefit returns. There are different reasons that people choose to take their benefits earlier or later. The best option will depend on the circumstances of the individual.
How Do Benefits Increase with Age?
As a working American, you have the lawful right to claim Social Security benefits as early as 62 years of age. However, there is a difference in the amount of money you receive. At 62, you would receive 75 percent of the monthly benefit amount you would otherwise get if you waited until your full benefit age. This is because you would end up getting 48 to 50 additional months of benefits.
For people who decide to wait longer to receive their benefits, there is a financial advantage.
If you were born between the years of 1943 and 1954, you can receive 100 percent of your full benefits at the age of 66. For every month you delay taking your benefits, there is a small percentage of increase. If you wait 12 months and take your benefits at the age of 67, your benefits will increase by eight percent. This increase continues every month you delay until you turn 70 and benefits stop increasing.
If you choose to delay receiving benefits until the age of 70, your benefits increase to 132 percent of what you would have received had you retired at the full benefit age. Even if your choice is to delay getting your benefits beyond 65, be certain to enroll in Medicare when you turn 65, otherwise your medical insurance may increase in cost.
Factors to Consider When Determining When to Get Benefits
How old you are when you begin collecting benefits depends on your individual situation. You should consider your age and health, your current income and living expenses, whether you are employed at the time, as well as future employment possibilities, and your financial situation.
In general, financial advisors suggest holding off until you reach the age at which you will get full benefits. On the other hand, if you do collect benefits for many, many years, you may come out on top by taking your benefits earlier.
If you want an idea about what your benefits will look like if you opt out early, you can calculate the number using the percentages of reduction below. These figures are based on full retirement age being 67:
• 30 percent reduction at the age of 62
• 25 percent reduction at the age of 63
• 20 percent reduction at the age of 64
• 13.3 percent reduction at the age of 65
• 6.7 percent reduction at the age of 66
If you are still not sure how Social Security benefits will affect you, discuss your options with with a professional financial planner.