5 Factors to Consider in Determining When to Start Social Security Benefits

Determining the optimal time to start collecting Social Security retirement benefits can present quite a challenge, and with those benefits comprising an increasing proportion of retiree income, for many retirees, the stakes are high. Below are five important factors to consider in making your decision.

Age. The starting point for any discussion of when to initiate Social Security retirement benefits is your full retirement age. Gone are the days of the one-size-fits-all retirement age of 65. For the vast majority of those still in the work force (those born in 1943 or later), full retirement age is at least 66 years old. For those born in 1960 or later, full retirement is 67 years old (for now). Given the projected trajectory of Social Security funding, it seems likely that Generation Y / Millennials will witness another increase in full retirement age in the coming decades.

Prospects for Longevity. Retirement benefits are permanently reduced if you begin taking them prior to full retirement age and permanently increased if you begin taking them later. (Assuming a full retirement age of 67, your retirement benefit is reduced by 30% if initiated at age 62 and increased by 24% if initiated at age 70.) Since, as Glenn likes to note, we cannot simply check for our expiration date on the bottom of our shoes, we cannot calculate with certainty which starting point would yield the greatest benefit. However, taking into consideration one’s personal health and family health history may shed light on when taking benefits would generate the biggest benefit. If your personal and family history suggest that you will beat your projected life expectancy, and you can afford to delay taking benefits, then waiting until age 70 will likely yield the best result.

Marital Status. If you are currently married (or are divorced, unmarried, and were married to an individual previously for more than 10 years), you may be able to collect one-half of the full retirement benefit of your spouse (or ex-spouse). For example, if you are also eligible to collect based on your own earnings record, you may gain by deferring your own benefit until age 70 and collecting one-half of your spouse’s benefit between full retirement age and age 70. Also, a widow or widower can start collecting their survivors benefit at age 60, and has the option of then switching to his or her own benefit as late as age 70.

Income. If you begin collecting benefits prior to full retirement age and are still working, your benefit may be reduced if your earnings for the year exceed an annual limit. (For 2015, the annual limit is $15,720 for years before full retirement age and $41,880 in the year that you reach retirement age.) Therefore, if you are still working, it will likely be best to wait until full retirement age to start collecting benefits, depending on your income level.

Taxes. Up to 85 percent of your retirement benefits may be subject to income tax depending on your adjusted gross income for the tax year. If you plan to work past full retirement age, you may want to delay receiving Social Security until you stop working in light of tax considerations.