I’m 62 and Retired – Should I Start Taking My Social Security Benefits?

You’ve just turned 62 and realize you have a big decision ahead of you that could materially affect the rest of your life. You’ve reached the age where you are now eligible to start taking social security benefits that you’ve labored for over the course of your working lifetime.

That’s a welcome development, but if you do start at this age you will potentially make considerably less in benefits each month for the remainder of your life. If instead you wait till you get older the monthly benefit will be a fair amount more. Which path makes more sense? A very big decision.

Intro

There are milestones in life that are memorable, from certain birthdays, graduations, landing the big job, marriage, having kids, et. cetera. Retirement is definitely among the list, as is starting to receive your Social Security benefits from the government.

This is a big deal – the Social Security Administration (SSA), on behalf of the U.S. Government, begins to pay you back some of what you have been paying into the system for likely many years. In fact, Social Security is a major source of income in retirement for seniors.

According to the SSA, nearly 90-percent of people 65 and older were receiving a benefit at the end of 2022. Overall, when it comes to the elderly, those benefits end up representing roughly 30-percent of their income in retirement.

For some, the monthly payment represents a much larger portion of their income, with roughly 37-percent of men and 42-percent of women reportedly receiving 50-percent or more of their income from Social Security. And for 12-percent of men and 15-percent of women who’re eligible for benefits, those monthly payments account for 90-percent or more of their income after they retire.

Given its importance, it’s critical you have a good grasp of the basics in terms of how it works and what you can expect. You also have a big decision regarding important implications related to when you begin to take the benefit.

The basics

Many people aren’t exactly clear on what Social Security is, other than it’s a monthly check they hope to get when they get older. According to the SSA, the retirement benefit is monthly income you receive from the government (after you become eligible – see below) that is intended to replace part of what was your working income before retiring, whether you continue to work, reduce your hours or completely and permanently leave the workforce.

It’s important to remember that this is a form of income that you paid for during your working lifetime – it’s not a handout. It will be paid to you monthly in the form of paper or electronic checks. The checks are always one month in arears, meaning you receive your July check in August, and so forth.

The amount you receive is based on a few straightforward factors:

• How much you earned in your career
• How many years you worked
• At what age you are when you first start drawing the benefit (a huge factor)

A big question for most people is what they will get when they start to take the benefit. The SSA looks at your “earning years,” creating an index of the 35 years of your working lifetime where you earned the most money. They then apply a formula to that figure to determine your Primary Insurance Amount, or PIA.

Once you turn on the monthly benefit, that figure will be paid out to you for the rest of your life. You can check with the SSA to determine your projected PIA by visiting the agency’s website: https://www.ssa.gov/prepare/get-benefits-estimate.

Qualifying rules

Outside of a disability (learn more here), you are eligible to start receiving Social Security payments when you turn age 62. The key consideration is when you reach the Full Retirement Age (FRA) in terms of how much of the benefit you will receive each month.

Full retirement age according to the SSA is as follows (see SSA chart below for exact breakdown by age):

• Age 66 for those born between 1943 and 1954
• Age 67 for those born in 1960 or later

If you begin taking the benefit at age 62 and your FRA is considered age 66 (born before 1960) then your benefit will be reduced by at least 25-percent and scale accordingly to a discount of as much as 29(+) percent.

If instead you begin taking the benefit at age 62 and your FRA is age 67 (born 1960 or after), your benefit will be reduced by 30-percent from what you would receive if you were full retirement age.

The other key fact to remember is that the reduction will remain in place for the remainder of your lifetime. This remains true even when the SSA implements periodic (annual) upward Cost-of-Living-Adjustments (COLA) to Social Security recipients to account for inflation.

While your benefit will be adjusted upward by the COLA adjustment, it will remain fixed at the discounted percentage (ex. 30-percent discount) you accepted by starting the benefit when first eligible at age 62.

If you are able to wait till you reach full retirement age at either age 66 or 67, you will be eligible to receive 100-percent of the benefit for the remainder of your lifetime.

For those who wait beyond the full retirement age to start taking Social Security, the benefit amount actually increases 8-percent per year up to age 70, at which point it is capped. If you wait till age 70 to start Social Security your benefit will increase by 24-percent above that which you were eligible for when turning full retirement age.

To provide some perspective consider this scenario:

The typical individual received $1,782 per month in 2023, according to the Social Security Administration. Were you to start at age 62 you’d be looking at a discounted amount of $1,247 monthly. That’s a negative difference of $535 monthly or $6,420 annually. And that’s for your lifetime.

If instead you wait to start drawing the benefit until you reach full retirement age (age 67 if you were born in 1960 or later) you’ll receive your full benefit. Were you able to hold off on taking the benefit till age 70, the benefit would actually increase to $2,210 monthly for life, a big difference versus starting at age 62.

Benefit analysis

Obviously, the decision to start earlier versus later is of consequence. So, how do you go about making sense of whether to start payments early or to wait till you reach full retirement age, or even waiting till age 70?

Let’s do the math using the average 2022 benefit figure listed above and calculating up to age 82:

• Starting benefit at age 62: $1,247 per month ($14,964 per year) X 20 years (age 82) = $299,280
• Starting benefit at age 67 (full retirement age): $1,782 per month ($21,384 per year) X 15 years (age 82) = $320,760
• Starting benefit at age 70: $2,210 per month ($26,520 per year) X 12 years (age 82) = $318,240

Changing the scenario to last to age 85, the numbers look like this:

• Starting benefit at age 62: $1,247 per month ($14,964 per year) X 23 years (age 85) = $344,172
• Starting benefit at age 67 (full retirement age): $1,782 per month ($21,384 per year) X 18 years (age 85) = $384,912
• Starting benefit at age 70: $2,210 per month ($26,520 per year) X 15 years (age 85) = $397,800

When looking at all the numbers, the problem is you don’t know how long your income (from all sources) will have to last because you can’t know when you will pass, so the decision is not so easy.

Also, keep in mind none of these figures account for COLA increases over the years – they are simply straight-line number for the sake of ease. That said, the numbers do increase as COLA adjustments are made, but they remain relative relating to the discounted benefit when started at age 62.

Buying power

Given the disparity between the figures over time, a big consideration is that of buying power. No doubt that in the short-term having that added income starting at age 62 can be very beneficial.

But over time you can see where holding off until at least full retirement age makes sense if you are in a position to wait, to the tune of approximately $20k+ in added income when extrapolated to age 82.

If you go a few more years to age 85, the difference adds up pretty significantly – more than $40k if you hold off till full retirement age at 77 and $53k+ were you to wait till age 70 to start receiving benefits. If you live longer the difference becomes even more pronounced.

When comparing you need to consider the fact that your cost in some areas will probably actually increase at a point when you have less ability to increase your income. One major example is health care costs. That added monthly income will become all the more important the longer you live – a major reason to hold off on starting Social Security.

Reasons why 62 might make sense

There are several legitimate reasons to consider starting Social Security when you become eligible at age 62. Here are two of the most common:

Need – If you can’t continue to work beyond that age and don’t have the savings and other income sources to support your lifestyle, or worse, to pay your minimum monthly bills in order to simply survive, you may have no choice but to start taking your Social Security benefit as soon as possible.

Health – If you are in poor health and/or have a limited life expectancy, then starting the benefit as early as possible can make good sense. But there is risk that you do live beyond your expectations, which can seriously impact your ability to pay the bills as you get older.

Married?

If you’re married there are a couple of considerations when it comes to Social Security. According to the SSA, there is a spousal benefit that can be as much as half of the worker’s benefit. This is dependent on the spouse’s age at retirement – they’ll receive a reduced benefit if less than full retirement age, unless that person is caring for a qualifying child, in which case the spousal benefit is not reduced.

If instead the spouse is eligible for a retirement benefit based on their earnings and those are higher than the spousal benefit, they will receive their full retirement benefit. The SSA will pay the higher of the two.

In the event of a death of either spouse, according to the SSA,  the surviving spouse can keep the larger of either their own benefit or that of their spouse’s.

Continue working

If you do decide to keep working past age 62 you can receive your Social Security benefit – there’s no limit to how long you can work and you will continue to receive your benefit regardless.

Keep in mind that if you start the benefit at age 62, the SSA will deduct $1 from the benefit payment for every $2 you earn above the 2024 limit of $23,320.

In the year you reach FRA, they will deduct $1 for every $3 you earn above the limit, up until your birth month, when they will no longer take a deduction from your benefit payment. This is based on earned wages or if you have self-employed income, not on other sources of retirement income, such as distributions from IRAs and 401(k) or other qualified accounts.

Taxes

One last big consideration is that of taxes. Many people assume that Social Security benefits are not taxable, but that is not the case depending on what the Internal Revenue Service (IRS) considers your combined income. This equates to your adjusted gross income plus nontaxable interest plus half of your social security benefits.

According to the IRS this is how it breaks down:

• If you file as an individual and combined income is $25,000 – $34,000, you may have to pay income tax on up to 50-percent of your Social Security benefits
• If you file as an individual and combined income is more than $34,000, you may have to pay income tax on up to 85-percent of your Social Security benefits
• If you file a joint return and your combined income is between $32,000 – $44,000, you may have to pay income tax on up to 50-percent of your Social Security benefits
• If you file a joint return and your combined income is more than $44,000, you may have to pay income tax on up to 85-percent of your Social Security benefits

Conclusion

There’s obviously a lot to unpack when it comes to making that big decision on when to actually start receiving Social Security payments. You want to be able to take the benefit as early as possible, and garner as much of the benefit as possible in terms of dollars, but as previously detailed, there are serious considerations that must be weighed. Long lasting considerations!

Decisions you make today can have a huge impact on what you have available later – even how you live in the latter part of your retirement.

For many people being able to hold off even a handful of years until they reach full retirement age can prove beneficial, especially given we are living longer in retirement today versus past generations.

Ultimately, your personal situation, including what you have saved for retirement, other income sources, your desire to continue working (or not), health, life expectancy of you and spouse, other retirement goals and plans, and more, all need to go into the equation.

Given all the factors and variables, and the long-term implications, it’s best to work with a qualified retirement planneror financial advisor as you navigate this decision.

We here at  Oak Harvest can assist you in making an informed decision on when to start receiving Social Security. We will do that in the context of your overall retirement plan. We can review your existing plan if you have one.

Or we can assist by building a holistic, comprehensive retirement plan addressing relevant issues, utilizing strategies that cover Social Security, taxes, income, spending, healthcare, LTC, legacy, and more, customized to your family’s specific scenario.

Our goal is to help ensure you have a plan in place that gives you the best opportunity to live out the retirement you and your family envision.

Don’t delay! If you are ready to take the next step and talk to a team of qualified retirement planners who can advise on all your retirement needs, and who will put your interests first, Schedule a call today!