Social Security Administration (SSA) benefits make up a large portion of most retirees' incomes, so carefully planning when to begin getting your payments is vital. You can make the most of SSA benefits when you are armed with the right information to make the best choice for you. Coordinating SSA payments with other sources of retirement income may end up paying you thousands more dollars in after-tax income if you do it right.
More than 75% of people who stop working before age 62 apply for SSA benefits within two months of reaching that age. In many cases, it would be better for them to use other savings to support them for a while. Options may even include taking some IRA withdrawals to delay the start of their SSA benefits.
Many SSA decisions can't be undone, but if you're a single retiree, the choice is less complex than if you're married.
Social Security at Age 62 vs. Age 70
SSA money can be claimed at any time from age 62 until age 70. You'll receive a “full” benefit, called the "primary insurance amount" or "PIA," at your full retirement age. In 2020, that was age 66 and two months for people who were born between 1943 and 1954. Your payments will be less if you begin getting payments before age 66, and they'll increase if you begin after 66.
You can get the maximum payment amount if you wait until age 70 to start getting paid. The monthly payment is 76% higher than what it would be if you were to start getting benefits at age 62. Here's a table showing the monthly benefit amount received starting at ages 62 through 70 with a PIA of $1,000.
Claiming Age: Benefit Amount
- 62: $750
- 63: $800
- 64: $867
- 65: $933
- 66: $1,000
- 67: $1,080
- 68: $1,160
- 69: $1,240
- 70: $1,320
The Impact of a Single Expected Lifetime
A single person who expects to live longer than average can gain from putting off receiving payments for a while, while those who expect to live shorter lives than average stand to gain from claiming benefits early on. In most cases, women gain more from putting off benefits due to their longer life expectancies.
Studies show that lifetime benefits are about the same for a person who lives to age 80, no matter whether he begins receiving benefits at any age from 62 through 70. Ages 80 through 82 are often called the "break-even ages," because it's to your benefit to take SSA payments later rather than earlier if you live past that range.
The Flaws in the Break-Even-Age Analysis
Although the break-even age might be a vital part of a thorough analysis, using it as the only factor in choosing when to begin SSA payments is flawed for several reasons.
Social Security serves as a vital hedge against outliving your assets. Research shows that putting off payments until age 70 can extend how long your money will last by six to 10 years. You might think that you'll live until around age 82, but what if you live to a healthy and productive 92? Putting off getting SSA payments can protect you against outliving your money.
Only thinking about the break-even age neglects the impact of taxes though. If SSA payments are your only source of income, you'll pay no taxes on them, but you could end up paying taxes on up to 85% of your benefits if you have other sources of income.
You can choose to withdraw from your savings instead and delay the start of your SSA benefits. In many cases, that plan can greatly increase your monthly retirement income or extend how long your retirement money lasts when it's viewed on an after-tax basis. You should run detailed tax projections to find the best way to withdraw money to give you the most after-tax income.
The Social Security Earnings Test
One more factor that's often not looked at is the earnings test. People who are working for pay and who still claim benefits prior to full retirement age face a reduction in their monthly payments if their earnings exceed the limit.
The reduction is temporary. After you reach your full retirement age (FRA), the monthly payments you receive will be adjusted upward to offset the earlier reduction. Because of the way the benefit recalculation works, it can take 13 to 14 years to recover the reduced amounts. It's almost always better to wait to claim benefits until you reach your FRA if you plan to keep working.
A Previous Marriage of 10 Years or Longer
Here's one more factor for singles to consider: If you were ever married, and that marriage lasted at least 10 years, you may be eligible to collect payments based on your ex-spouse's work record. In that case, think about your SSA payment-claiming decision more as a married person would. You might be able to use a spouse's benefit for a few years, then switch to your own benefits, or vice versa. Such a plan could boost your lifetime income by quite a bit.