The average American relies on Social Security for most of their income in retirement, and thus, needs to know when to collect social security for their greatest benefit. Without social security, retirees can find themselves unable to make ends meet. These facts make Social Security one of the most critical aspects of your retirement planning. Making the right decisions now about when to collect Social Security will improve your ability to enjoy your retirement and help you worry a little bit less.
But, like most of us, this is probably your first time retiring. That means you have no experience, no previous stint with retirement to have learned from in the past. It's your first go around, and everything is new. You've never collected Social Security before, so it isn't easy to know what is the best age to collect Social Security. With this in mind, we've put together this guide to Social Security for you. In it, we're including everything you need to consider about the timing of collecting Social Security so you can maximize your benefits and meet your needs and wishes with ease.
The earliest age to collect Social Security is 62, but that doesn't necessarily mean you should start collecting your benefits at that age. You might want to consider several factors before deciding to apply for your benefits as soon as you reach the minimum age to collect Social Security. For instance, your Social Security benefits reduce when you choose to start receiving your payouts before your Social Security full retirement age. In fact, each month that you collect early will reduce your benefits. Conversely, delaying your benefits past your full retirement age means that you can begin to earn what are known as delayed retirement credits. Delayed retirement credits can increase your monthly benefit amount. As you can see, it can pay to put off collecting your Social Security benefits, but that's not the only factor to consider when deciding when to collect social security. Let's get into more detail and determine what other considerations are necessary when planning your Social Security benefits
The first thing you will need to know about when to collect Social Security benefits is the definition of full retirement age. So, what is full retirement age for social security benefits? Your full retirement age refers to the earliest age to collect full Social Security benefits or the age to collect Social Security without penalty. If you're born in 1960 or after, your full retirement age is 67. If you were born before 1960, your full retirement age will depend on what year you were born and starts at 66 years and two months for those born in 1955. Your full retirement age is not an indication of when you need to retire. That is a choice that is entirely up to you, based on your lifestyle and preferences.
You can calculate your full retirement age using the table below.
Year of Birth
Full Retirement Age
66 & 2 months
66 & 4 months
66 & 6 months
66 & 8 months
66 & 10 months
1960 or later
You may have some idea of what you've paid into Social Security over the course of your career, but how do we determine what our payouts will be when we retire? There are a few ways to estimate what your benefits will amount to, but the easiest way is to calculate your payouts. Here's how to do that:
Step One: Calculate AIME
AIME stands for average indexed monthly earnings and is an average of your monthly income over your career adjusted for inflation. To calculate your AIME, follow these steps:
Identify the AWI for the year you turn 60 using this page. In this example, we’ll assume you turned 60 in 2020. The AWI in that year was $55,628.60
Find your income for the year you want to index. In this example, we’re using the year 2009, and assuming you made $57,546.76
Find the AWI for the same year on this page. The AWI in 2009 was $40,711.61
Divide the 2020 AW by the 2009 AWI:
55628.60➗40711.61 = 1.37
Multiply your income in 2009 by 1.37:
57546.76 x 1.37 = 78839.06
Repeat this process for every year of income.
In our example, the result is $78,839.06. That figure represents your earnings in 2009 adjusted for inflation. You'll want to do this for each year that you worked. Once you have each year's indexed earnings calculated, add up your highest 35 years and divide the total by 420 (the number of months in 35 years), and you'll get your AIME. If you worked less than 35 years, use a zero for each year you didn't work.
Step Two: Find Your Primary Insurance Amount
You can convert your AIME to a Primary Insurance Amount (PIA) by completing calculations with what are known as "bend points." Bend points are points where your returns diminish once you exceed an earning threshold. The purpose of these points is to benefit someone who earned less income. In 2022, these bend points are $1,024 and $6,172.
Now, we need to run your AIME through these bend points. So, for example, if your AIME came out at $11,982, here's how your calculations will look:
Multiply the first $1,024 of your AIME by 90%:
1024 x .9 = 921.60
Subtract the first bend point from the second bend point, so deduct $1,024 from $6,172. :
1024-6172 = 5,184
Subtract the second bend point from your AIME, so deduct $6,172 from $11,982, giving us $5,810. Multiply this result by 15%:
11982-6172 = 5.810
5,810x.15 = 871.5
The results of these three calculations are $921.60, $1,647.35 and $871.5. Your PIA will be the sum of these figures, which is $3440.45
Adjustments may need to be made to get your correct benefit amount. For instance, you will want to increase your PIA by a cost-of-living (COLA) adjustment, which is different for each year. In 2022, the Social Security COLA is 5.9%. Your choice of when to begin collecting Social Security benefits will also affect this number.
You have the option of collecting Social Security before you reach your full retirement age, but it comes with a small caveat: your benefits decline each month before your full retirement age that you collect Social Security. If you decide to collect your Social Security benefits 48 months before you reach your full retirement age, this will reduce your benefits by 5/9 of 1% for the first 36 months and 5/12 of 1% for the remaining 12 months or any number of months that exceed 36. The longer you can put off collecting your Social Security benefits, the more you will receive. It pays to be patient, and you can more likely afford that patience when you plan ahead. A solid and realistic retirement budget and a clear roadmap of the future can help you decide when to collect social security to your highest benefit, and put off the need to collect your Social Security benefits before your full retirement age.
We've established that collecting Social Security early will reduce your benefits, but what happens if you put off Social Security until after you reach your full retirement age? Once you turn 62, you can begin to collect your benefits from Social Security, but there are clear benefits to waiting as long as you can. If you delay until after you turn full retirement age, your benefits will increase. In this scenario, you'll earn what is known as "delayed retirement credits." These credits have the power to increase your Social Security benefits leaving you better off financially when you stop working. Each month you delay, you earn delayed retirement credits that increase your Social Security benefits. This increase will stop at age 70. These credits sound like a great deal and an excellent reason to put off collecting your benefits, but there are downsides as well. Living a long and active life well after retirement can make waiting for your benefits pay off, but if there's any likelihood you won't live as long, you might consider collecting your Social Security benefits as soon as you can.
Social Security is a program designed to begin at full retirement age and last for the duration of your life. There is no maximum age to collect Social Security. For the retiree, these benefits do not end until death. There are some restrictions to Social Security benefits for spouses, survivors and children. Spouses of retirees who collect Social Security benefits will also collect their benefits for life. These benefits will end when and if the surviving spouse begins to receive their own retirement benefits. Children who survive a Social Security beneficiary may collect benefits until they reach age 18, or 19 if they are full-time students. A spouse or ex-spouse may also receive "mother's and father's insurance benefits," which will continue until the child is no longer in their care or reaches the age of 16. Social Security recipients eligible for two different sets of benefits will receive the payments with the higher amount.
Now that we know that Social Security benefits are not just for retirees, how can we determine if we are eligible for spousal benefits? When can you collect Social Security as a spouse? Spouses of retirees who collect Social Security benefits can expect up to half of what the primary retiree receives. Spousal eligibility is dependent on your earnings, and the amount you may receive can differ based on numerous variables. These variables include how old you are, your earnings, your spouse's benefit amount and what benefits of your own for which you may be eligible. If you are eligible for retirement benefits of your own from Social Security and they exceed the amount you would collect from the spousal benefits, you will receive only your own retirement benefits. Several other factors are considered when assessing your eligibility for spousal benefits through Social Security. Let's take a look at some of these factors a little more closely:
Whether or not you have re-married, your ex-spouse may still be eligible to receive benefits based on your Social Security. They can collect Social Security benefits as your ex-spouse if you were married longer than ten years, your ex-spouse has not re-married, they are age 62 or older, and you are entitled to Social Security benefits. Your ex-spouse will not be eligible if they qualify for a Social Security benefit that is greater than the spousal benefit.
There are many households with just one income earner, and Social Security benefits support them as well. Even if your spouse never paid into Social Security or did not meet the earnings threshold to qualify for their own Social Security benefits, they can collect payouts based on your status as a Social Security beneficiary. The maximum that spouses can collect is 50% of what the primary beneficiary is claiming, and these payments are intended to last for life.
When can you collect your deceased spouse’s Social Security? When the beneficiary of Social Security passes away, the surviving spouse may qualify for survivor benefits if they are more than any other Social Security benefits they may be eligible for. There are some age restrictions, however, that can affect eligibility. When your spouse dies and they are receiving Social Security benefits, you will be eligible to collect benefits if you're beyond the age of 60. However, if you have a disability, you need only be 50 years old to collect Social Security survivor benefits. You can also be at any age to collect Social Security benefits if you are the caregiver of one of the deceased's children under the age of 16, or who has a disability.
The "File and Suspend" method is a clever way to collect spousal benefits while delaying the collection of Social Security benefits of their own. With this method, one can collect Social Security spousal benefits while also earning delayed retirement credits, making it a way to maximize the amount you can receive from Social Security. Unfortunately, this is not possible for those born after January 2nd, 1954. If you are born before that date, you may still be able to take advantage of this method if you've reached your full retirement age and file a restricted application.
Most Americans will pay income tax on some of their Social Security benefits, but it depends on your other sources of income and if they bring your overall income above the tax threshold. If you're an individual and earn $25,000 or more, including Social Security, up to 50% of your benefits could be taxed. If you make $34,000 or more, up to 85% of your Social Security income may be taxed. You will never see the total amount of your Social Security income taxed.
Couples who file their taxes together have similar thresholds, with up to 50% of benefits being eligible for taxation when $32,000 is earned between the two of you, and up to 85% of your benefits could be taxed if you earn more than $44,000 combined. The same taxation thresholds for spousal benefits apply to survivor benefits, child benefits, and disability benefits through Social Security.
It’s important to understand that your healthcare coverage can be affected by your Social Security, because this might help with your decision as to when to collect social security benefits. As soon as you begin receiving Social Security payouts and you're 65 years of age or older, you are required to sign up for Medicare Part A. Medicare Part A is a free healthcare plan, but once you're enrolled in Medicare part A, you will no longer be able to contribute to your Health Savings Account. This is a factor to consider when deciding how soon and when to collect social security. Waiting to collect Social Security until after you are 65 may not prevent this from happening either, as you may still be required to enroll in Medicare Plan A to avoid paying premiums in the future for other Medicare plans. Because of the various scenarios, it's good practice to understand how Social Security benefits might impact your healthcare coverage before deciding when to start collecting.
There is a term for the ideal age of when to collect Social Security benefits to maximize what you receive. It is called the "break-even age." When you choose to start collecting your benefits early, you get them at a reduced rate, but you'll get more payments in total. When you delay your benefits until you're 70, you can increase the amount you earn each month, but you will be collecting fewer total payments as it will be over a shorter amount of time. Your break-even age is the point in time when you find a balance between the size of your payments versus the length of time you'll be receiving them. Other factors need to be considered, though, before just accepting your break-even age and running with it. Delaying your benefits works out in your favor if your life expectancy is long. You might also need the income sooner rather than later. Do you plan to continue working or explore new income opportunities? Does your spouse bring enough income to support you as you defer your Social Security benefits? Choosing what is the best age to start collecting Social Security can be a complicated decision, but there is no right way to make it. It will be based on your unique situations, needs, and goals.
Sometimes our financial situation changes, and the decisions we made yesterday may not be the best decisions for today. It's important to note that you can change your mind even if you have already applied for your Social Security benefits. Once you've applied, you have up to 12 months to pull your application. Rescinding your application for benefits is called a withdrawal. You will still be allowed to apply again later, but keep in mind that you are only entitled to one withdrawal. Once the 12 months to withdraw have passed, you may request a suspension of benefit payments if you've reached full retirement age but have not turned 70. Withdrawing your application for Social Security benefits means that you will need to repay any benefits you have already received. Any benefits that your spouse or children received must be paid back as well. You may also have to cover any Medicare premiums withheld from your Social Security payments. You can withdraw your Medicare coverage as well.
Making the right decisions about when to collect Social Security benefits can be confusing. There are a lot of different variables to weigh and factors to consider. Calculations can be complicated, which can make planning your future challenging. That's where we come in.
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