The majority of Americans decide to collect their Social Security benefits the moment they turn 62, but waiting just a bit longer can yield much greater returns for most, and many are now delaying their retirement benefits as long as they can.
This depends greatly on the circumstances you’re experiencing, and if you’re already well off, you probably won’t mind waiting a couple of years longer to reap the rewards of years of being part of the workforce.
On the other hand, lower-income households may have a harder time making ends meet, and they’re much more likely to collect their retirement benefits as soon as possible, as they won’t be able to wait until they reach full retirement age in order to maximize the return they’ll get.
Essentially, if you can afford to wait, you may just want to, although there may be other things for you to consider before deciding on this.
Full retirement age explained
Also known as the normal retirement age here in the US, the full retirement age is technically classified as when you’re able to begin receiving Social Security benefits, and this number depends on when you were born.
Those born in 1960 or later can retire at 67 and begin reaping the rewards of their hard work, whereas those born between 1955 and the end of 1959 can reach full retirement age at 66 and a couple of months.
Anyone born before 1955 reaches full retirement age at 66, and with it, access to full Social Security benefits they’ve earned over the many decades they’ve spent working on their career.
The real reason why people wait to reach FRA is that it allows them to receive greater benefits than they would had they not waited, and this extra money can go a long way if you’re looking to retire.
The upside of reaping the rewards early
While you do gain access to a significant portion of money a lot sooner if you choose not to wait for FRA to collect your Social Security benefits, you should note that you’ll be losing out on quite a hefty sum of money.
Your benefit is reduced by 5/9 of 1% every month that you couldn’t wait, and if you started 3 years before reaching FRA, the benefits are further reduced by 5/12 of 1% for every month for the rest of your retirement.
This means that if you stopped being part of the workforce at 62, the reduced benefits will be accounting for 60 months, and if you run the numbers, you’ll find that you’re missing out on 30% of your benefits permanently, for the rest of your life, just because you had to jump the gun and collect sooner than later.
Delaying your benefits
In contrast to those who go ahead and collect their benefits as soon as possible, some Americans choose to be a bit more patient, and if you keep reading you may just find out how much of a difference a couple of years can make.
Retiring at any point between your calculated FRA and turning 70 gives you something commonly known as retirement credit which you can use for your own benefits.
This means that if you waited around 2 years after reaching FRA to retire, you can gain access to a yearly credit of 8% times the number of years you waited.
For only 2 years you’d spend in your career, you could potentially increase your benefits by 16%, which outweighs the losses you’d get by retiring 5 years earlier.
It’s important to note that this credit doesn’t include or account for any cost of living adjustments that may have happened between you reaching FRA and the time you actually chose to retire.
How to decide
Choosing between money up front or some extra money, later on, can be extremely difficult, and if you’re experiencing a lot of financial instability, you may be inclined to just collect what you can now and move on with your life.
However, a loss of 30% for 5 years you couldn’t wait can sound like a lot, and that’s probably because it actually is, and if you consider that you could receive u to 16% more instead by just waiting for a couple more years, it’s hard to argue that retiring earlier is worth it.
The social security benefits for retirees are a delicate matter, and it’s up to everyone to decide for themselves, although things would be much easier if not for the circumstances some Americans go through.
As sad as it is, some are just forced to take what they can, even if it’ll cost them thousands of dollars down the line, and it’s up to you to make the right choice.
Each has its own advantages and downsides, so you’ll want to make sure you’ve properly explored both possibilities before diving in headfirst.