Looking to make a wise decision about when to start collecting Social Security? It’s a pressing question that leaves many folks like you scratching their heads. The heart of this article — “Is It Better To Collect Social Security At 62 Or 67?” — will provide you with a thorough understanding to help answer this conundrum. It offers a comprehensive comparison, considering your current age, financial situation, health status, and lifestyle to help you determine the best age to lay claim on your Social Security benefits. So sit tight, your road to manage your post-retirement life in a financially secure way is just around the corner.
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Understanding Social Security
When it comes to understanding Social Security, picture it as a lifeline aimed at keeping you afloat during your retirement years.
Concept and function of Social Security
Social Security, a government program introduced in the United States in 1935, works as a kind of insurance. Throughout your working life, you pay into the system via taxes, and then, once you retire or if you become disabled, it offers a source of income to replace some of your earnings. Social Security can serve as your supplement to other retirement income sources, and it’s also beneficial for those whose earnings were insufficient or nonexistent due to career breaks or low-paying jobs.
Age and eligibility of Social Security
Generally, the earliest age at which you can start claiming Social Security Retirement Benefits is 62, but the benefits are reduced if taken before your Full Retirement Age (FRA). The FRA, depending on your year of birth, ranges from 65 to 67. Waiting until 70 to collect benefits could increase them significantly.
Calculating Social Security benefits
Your Social Security benefits are calculated by indexing your 35 highest-earning years to account for wage inflation and then are averaged to yield a figure known as the “Average Indexed Monthly Earnings”. This figure is then subjected to a specific formula to determine your Primary Insurance Amount (PIA), or the benefit you could receive at FRA. The longer you wait to claim benefits, the larger your monthly check will be.
Starting Social Security at 62
You might consider starting social security at 62 for a variety of reasons, but it’s not always a straightforward decision.
Reasons to consider collecting Social Security at 62
Early retirement is attractive for many reasons, particularly if you’re in a physically demanding job or simply feel ready to take a step back from work life. Moreover, if you have pressing financial obligations or health issues, you might consider collecting Social Security at 62.
Benefits of collecting Social Security at 62
Earlier access to benefits and financial independence can be a great relief for those with limited savings or who face unexpected expenses. Also, the sheer freedom that retirement allows might be worth more to you than any financial considerations.
Drawbacks of collecting Social Security at 62
Choosing to collect early implies a reduced monthly benefit – about 25-30% less than if you waited until your FRA. This reduction is permanent and could significantly impact your financial stability in later years if your other income sources aren’t substantial.
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Starting Social Security at 67
Deciding to wait until 67 to start collecting Social Security can be a wise financial decision for some individuals.
Reasons to consider collecting Social Security at 67
One of the main reasons to consider waiting until FRA is the increase in monthly benefits compared to taking them at 62. If you are still working and can afford to live comfortably without the need for Social Security, waiting can be a good option.
Benefits of collecting Social Security at 67
Collecting benefits at your FRA ensures that you will receive 100% of your calculated benefit amount. This could mean a significantly higher monthly income throughout retirement, potentially leading to a more comfortable and worry-free life in your golden years.
Drawbacks of collecting Social Security at 67
The most significant drawback is having to wait. Depending on your health, age, employment status, and other factors, postponing benefits to 67 might not be an option.
Economic Factors affecting the decision
Besides personal preferences and circumstances, several economic factors can influence your Social Security decision.
Inflation
Over time, inflation has the power to erode your purchasing power. Retiring at 62 sees benefits locked at a lower amount, potentially leaving you more exposed to inflation over a longer retirement period.
Current living expenses
If your current income isn’t sufficient to cover living expenses, starting your benefits earlier might be essential. Always consider your mortgage, bills, and other necessary outgoings.
Expected future expenses
Predicting future economic conditions can be a tough task. Consider factors like future medical costs, mortgage payments, and your expected lifestyle, to make a more informed choice.
Health considerations
Your health status also plays a pivotal role in this decision.
Life expectancy
If longevity runs in your family and you’re in good health, delaying benefits might make more sense.
Current health status
Those in poorer health or with a shortened life expectancy may be better off collecting benefits earlier.
Cost of health care in future
Rising healthcare costs can eat into your retirement savings. Factoring in future medical expenses can help you decide when to start claiming Social Security.
## Working considerations Your current employment status and future working plans can also influence your decision.
Current employment status
If you’re still gainfully employed and don’t need the additional income, it might be beneficial to delay your benefits.
Desire or need to continue working past 62 or 67
If you plan to work past 62 or 67, know that your wages might affect your Social Security benefits, depending on whether you have yet reached FRA.
### Possible impact on Social Security benefits if you continue working If you haven’t reached FRA, earning too much can result in a reduction of your Social Security benefits.
Personal lifestyle factors
Personal preferences regarding retirement lifestyle are important to consider.
Personal savings and investments
A stable financial footing with personal savings and investments can afford the luxury of time, allowing you to delay claiming benefits to secure a larger monthly amount.
Desired lifestyle in retirement
If travelling, picking up new hobbies, or other costly activities are on your to-do list after retiring, having larger benefits coming in later might be prudent.
Dependent family members
If you have dependents, for example, a younger spouse, children, or parents, this might affect both the timing and the value of your benefits.
Impact on Spousal Benefits
Your decision when to claim can have repercussions on your spouse’s benefits as well.
Rules for spousal benefits
Dependent spouses are eligible to receive a maximum of 50% of your benefit amount at FRA. This can also be influenced by the age at which you start collecting your benefits.
How early or later retirement affect these benefits
If you start collecting benefits early, spousal benefits are also reduced. Conversely, if you delay your benefits, it doesn’t increase the spousal benefit.
Consideration of Overall Retirement Plan
It’s vital to consider how Social Security fits into your broader retirement plans.
How Social Security fits into overall retirement plan
Social Security will not cover all of your expenses in retirement, so it is generally considered as one piece of a larger retirement puzzle, which might include pensions, investments, and personal savings.
The role of other income sources such as pensions or investments
Other sources of retirement income like pensions or investments can ease the reliance on Social Security, offering enhanced flexibility on when to start claiming benefits.
Seeking Professional Advice
Ultimately, this is a highly personal decision and could benefit from professional input.
Benefits of consulting with a financial planner
Financial planners can offer valuable advice, personalized to your specific circumstances, and help you navigate the complexities of Social Security.
How a financial planner can personalize the decision to your specific circumstances
Financial professionals can assess your overall financial picture including investments, pensions, savings and expenses, and help design a personalized strategy for claiming Social Security benefits.
When deciding whether to take Social Security at 62 or 67, it’s essential to consider numerous factors. Understanding the pros and cons of each scenario will guide you in making the best decision for your individual situation.
