When Should a Retiree Take Social Security?
Withdrawing Social Security Payments Early May Be Unwise
Apr 10, 2009
Those approaching retirement must decide when they want to start taking their social security benefit payments. While retirees can begin taking social security benefits at age 62, it may be far more prudent financially to wait a few more years all the way up to age 70. As a general rule, the longer one delays retirement, the more money will available when the person retires, thus ensuring a more comfortable retirement.
Social Security: What Is Full Retirement Age?
Retirement age varies by country. For example, Canadian provinces recently dropped mandatory retirement at age 65, allowing employees to continue working until age 70. In the United States, workers can retire between age 62 and 70. However, in order to receive full retirement benefits, the person must be aware of his or her full retirement age according to the U.S. Social Security Administration. Retiring before the full retirement age will result in a dramatic decrease in social security benefits.
The Social Security Administration calculates full retirement age by date of birth. Full retirement simply means the age at which the person is able to retire with the full amount of social security benefits. However, for some people it makes good financial sense to delay retirement even beyond social security full retirement (up to age 70). According to the U.S. Social Security Administration, full retirement age is
- 65 for those born before 1937
- 66 for those born between 1943-1954
- 67 for those born between 1960 and later
Consequences of Taking Social Security Benefits Too Soon
If the person retires before full retirement age, social security benefits will be reduced in order to extend benefits for the extra years. However, delaying retirement until full retirement age may substantially increase benefits for each year delayed. Cost of living adjustment (COLA) benefits are factored in as well. The Social Security Administration website provides a useful chart that displays full retirement age and money a retiree can expect if he or she retires early.
As an example, a person who was born in 1953 begins receiving benefits four years early at age 62. Consequently, a $1000 per month retirement payout would be reduced to $750, a 25 percent reduction in monthly benefits. Thus, the person would see an annual decrease in benefits of $3,000.
The Bottom Line on When to Take Social Security Payments
Though some may have little choice otherwise, people need to consider the consequences of beginning to draw social security benefits before their full retirement age. They may even opt to continue working or find part-time work. While some retirees may need the money straight away, if possible it is best to defer retirement until age 70 when the maximum social security benefits can be paid out.
See related articles, “Smart Money Management Tips for Retirees,” “How Much Money Is Needed for Retirement?," and "Retiring Too Early Could Prove Costly.”
