Like all retirement benefit plans, Social Security rewards the one who’s patient. Though you can start receiving the payment earlier, it is best to wait until your full retirement age before you start receiving the benefit. People who wait could receive between 5 to 8 percent more money than those who do not. That’s more money to enjoy your retirement years without doing anything other than just waiting. However, it is not without risk.
The full retirement age is not the same for everyone, but it is between 66 years to 67 years for most people. Here is a complete breakdown for more clarity:
• For people born before 1938, the full retirement age is 65.
• For people born in 1938, it is 65 years and two months.
• For people born in 1939, it is 65 years and four months.
• For people born in 1940, it is 65 years and six months.
• For people born in 1941, it is 65 years and eight months.
• For people born in 1942, it is 65 years and ten months.
• For people born between 1943 and 1954, the FRA is 66 years.
• For people born in 1955, it is 66 years and two months.
• For people born in 1956, it is 66 years and four months.
• For people born in 1957, it is 66 years and six months.
• For people born in 1958, it is 66 years and eight months.
• For people born in 1959, it is 66 years and ten months.
• For people born in 1960 and later, the FRA is 67 years.
As you can see from the chart, the FRA for most people is between ages 66 and 67. Only very old people will fall in the categories before that.
If you retire at 62 or even before that, you can start receiving your Social Security benefits immediately after you are 62. However, you won’t be eligible for the same monthly payments as you would have if you had waited until your FRA or age 70. While you can get more if you wait till 70, not waiting until your full retirement age will mean a reduction in your benefits.
For the first thirty-six months that you start receiving the benefits before your FRA, there will be a 5/9 of 1% deductions in your benefits. The deductions amount to 6 2/3% every year for those first three years. After the initial thirty-six months, the deductions become 5/12 of 1% for every month until you attain your full retirement age. The deductions amount to 5% deductions every year until your full retirement age.
For further clarity, here is a quick breakdown of deductions if your full retirement age is 67 and you opt to start receiving your benefits before you 67:
• If you take your benefits at 62, it would be reduced by 30%.
• If you take it at 63, it would be reduced by 25%.
• If you take it at 64, it would be reduced by 20%.
• If you take it at 65, it would be reduced by 13.3%.
• If you take it at 66, it would be 6.67%.
The more you delay receiving your Social Security, the more money you will receive.
It is best to wait until your full retirement to make the best of your Social Security benefits. Doing this can earn you delayed retirement credits of 8% every year from your full retirement age until 70. For instance, if your FRA is 70, you would have three years until you are 70. If you wait till then, Social Security will multiply the 8% by three, giving you a 24% increase on your benefits.
However, like all investment strategies, there are risks attached to this strategy. Waiting comes with the risk of dying before you collect as much as you have contributed to the plan or before you even start receiving the payments altogether. There are different percentages used to determine the break-even point, but many experts agree it takes around 12 years. So, everyone who wants to wait until after their FRA or 70 should factor in the 12-year yardstick.
Unfortunately, the risk of death is universal, and there is no way to estimate how long one would live. But the decision to take the risk or not is totally in your hands. If you think you will have much more time after your FRA to receive what you put into the welfare plan or more, then go for it. Wait until your FRA or longer to make the best of your Social Security. However, if your think you will not have that much time, you should start receiving your monthly benefits as soon as the law permits.
Before you make your decision, you should note that you need another source of income that can supplement whatever you receive from your TSP and federal annuity while you delay receipt of your Social Security.