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The Social Security Dilemma: The Best Decision is a Personal One

The early bird gets the worm. The slow and steady tortoise wins the race. There are a multitude of adages defending both quick-acting people and those who delay decisions. When it comes to Social Security, there are advantages and disadvantages to collecting early or postponing the start of retirement benefits.

Retirement Age and Percentages

People who have paid into Social Security are eligible to start collecting their retirement benefits as early as 62 or as late as age 70. The amount of benefits received depends on how close someone is to their full retirement age when they begin collecting. Depending on someone’s year of birth, the full retirement age can vary. For example, individuals born between 1943 and 1954 have a full retirement age of 66.  Those born in 1960 or later have a retirement age of 67.
If someone begins collecting benefits prior to the full retirement age, the monthly benefit amount will be reduced by a percentage. Someone with a full retirement age of 67 who begins collecting benefits at 62 will see their benefits reduced by about 30 percent each month, whereas someone who begins collecting at 66 will see a 6.7 percent reduction.

Collecting Early

If collecting early means receiving a smaller percentage of retirement benefits, why would anyone collect early? It turns out there are plenty of reasons why collecting Social Security early might be beneficial to individuals.

  • Create more income now. If someone finds themselves in a position where they need an income stream right away, then collecting a portion of the full benefits might make more sense than tapping into other retirement savings. Additionally, if someone does not have a significant amount of retirement savings, Social Security benefits can provide important cash flow into a monthly budget.
  • Supplement part time work. Just because someone collects Social Security benefits does not mean they have to forfeit working entirely. As of 2018, individuals collecting Social Security are allowed $17,040 before they see a reduction in their benefits. As a result, Social Security benefits may be a helpful way to supplement part-time work.
  • Plan investing or gifting strategies. There are no rules requiring individuals to spend their Social Security checks. In fact, some individuals may wish to collect early in order to create a nest egg, allowing them to set up investing strategies or gifting strategies that suit their individual needs and wishes.
  • Consider health issues. While no one likes to think about a shorter life expectancy, someone with health issues may consider collecting early. Someone who starts collecting their benefits at age 62 will receive a smaller check than someone who collects at 70. But the individual who collects first will be collecting checks for eight years longer than someone who delays collecting. Depending on family medical history, individual health issues and lifestyle choices, it may make sense to begin collecting benefits as early as possible.

Waiting to Collect

While there are many reasons to consider collecting early, waiting to draw benefits until full retirement age can have its advantages.

  • Land a raise. Every year you delay collecting Social Security benefits results in an 8 percent increase in your benefits. That means that waiting until the age of 70 would yield someone 132 percent of their benefits, allowing them to earn more money later in life.
  • Coordinate with a spouse. A married couple may want to be more strategic with their Social Security benefits because benefits can be passed from one spouse to the other in the event of death. As such, the higher-earning spouse will often times choose to delay benefits. That means if the higher earner passes away first, the surviving spouse will be left with the largest benefit possible. There is a lot of merit to this consideration given the fact that nearly 8 million individuals are collecting Social Security benefits as a result of their deceased spouse’s work history.
  • Plan to work. Someone who is motivated—for financial or other reasons—to keep working up to their full retirement age could negatively impact their benefits by collecting early depending on their level of earned income. Someone who plans to earn more than $17,040 a year would have $1 deducted from their benefits for every $2 they earn past the income limit.
  • Consider longevity. No one can predict the future. However, someone who is in good health, makes positive lifestyle choices and has a family history of longevity could come out ahead if they delay their benefits. An individual who lives into their 80s or 90s could see almost an extra $75,000 in benefits over the course of their lifetimes simply for waiting to collect.

When it comes to choosing an age to collect Social Security, there is no easy answer. The best age to collect is highly dependent on each person’s individual situation. For the early birds, there are health considerations and immediate income streams to consider. For the tortoises, there are situations with spouses and longevity to factor into the decision. Careful consideration of the advantages and disadvantages of collecting Social Security at different ages will help each person make the right choice for them.
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