Delaying Social Security

Before you begin collecting Social Security benefits, you may want to figure out if it's to your long-term advantage to delay receiving benefits.  That's because the longer you wait until you begin collecting a monthly check from Social Security, the larger the monthly check received.

In this article, we're going to talk about the pros and cons of delaying Social Security payments.  That will include a discussion of how the level of benefits received will change over time, as well as factors you need to weigh before making a decision to collect benefits.  Finally, we'll point you an online tools that can help you make a more informed decision.

Social Security Benefits

The U.S. government is a large and sophisticated organization.  And the Social Security Administration is charged with a very important duty - to supply a steady stream of retirement income to Americans.  But as those same Americans approach 62 years of age they're faced with a very important decision - should they start receiving monthly Social Security benefits?

Qualifying for Social Security

To qualify for retirement benefits under the Social Security program, you must earn 40 credits over your working lifetime.  There are exceptions to this requirement under disability and survivor benefits, but under normal circumstances, 40 credits are needed to earn benefits.

You can earn up to four credits each year you work.  And since it only takes about $4,200 in income to earn to earn these credits, it's common for individuals to earn all four credits each year worked.

Collecting Social Security Benefits

You're eligible to start receiving your Social Security retirement benefits when you reach the age of 62.  However, if you begin receiving benefits at age 62, then you'll be receiving what Social Security would refer to as "early" benefits.  Early benefits under the program were reduced from what the system considers full benefits.

Full, or Normal retirement age under the Social Security program used to be 65, but a law passed back in 1983 modified the system such that only those persons born in 1937 and earlier were eligible for benefits at age 65.

The table below provides a listing of "normal" retirement age for individuals born between the years of 1938 and 1959.  Individuals that were born after the year 1960 need to reach the age of 67 before qualifying for full benefits.

Full / Normal Social Security Age

You can also choose to delay receiving Social Security retirement benefits past the full or normal retirement age, which is referred to as "delayed" benefits.  By delaying benefits, you'll receive higher monthly payments.

Pros and Cons of Delayed or Early Benefits

As mentioned earlier, if you begin receiving benefits before full retirement age, then you'll receive reduced benefits.  If you delay receiving benefits, then you'll receive increased benefits.  The table below illustrates the impact of your decision as to when you start receiving benefits.

Social Security Benefits

This example demonstrates that individuals that need to reach age 67 in order to receive full Social Security retirement benefits would receive only 70% of their full benefits if they started collecting benefits at age 62.  Conversely, if this individual were to delay taking benefits until age 70, then they would receive 124% of their full benefits.

The reason that the Social Security Administration needs to reduce benefits for early collectors, and is willing to increase benefits to those delaying receipt of benefits, is quite simple:

The age at which you start collecting benefits will determine the total number of years you'll receive benefits.  Starting early means that you'll collect benefits for a longer period, while delaying benefits means you'll receive benefits for fewer years.

Deciding When to Collect Benefits

Deciding when to start the collection of Social Security retirement benefits is a personal matter.  Before you decide to start collecting Social Security retirement benefits, you should consider the following factors:

• Work Status - If you're still working, then there are earning limits that apply between the age of 62 and full retirement age.  If you earn too much, then you will need to give up some of your benefits.  These limits no longer apply once you reach normal retirement age.
• Longevity - At age 65 a man can expect to live to around 83 years of age and a woman age 65 can expect to live until nearly 85 years of age.  If family members tend to be long-lived, and you expect to do the same, then you might want to delay receiving benefits.
• Health - If you're not in good health for some reason, then you may decide to collect benefits earlier.
• Financial Health - If you're thinking about delaying Social Security, then you're going to need to have sufficient income from other sources - such as a working spouse, retirement plan such as a 401k, pension or savings account.

Online Benefits Calculators

If you'd like to run through some "what if" scenarios, you can use our online Social Security benefits calculator to help you figure out the future value of your benefits.  This calculator is best used if you have your Social Security Statement, or you can visit the Social Security website prior to using this tool to figure out the income benefit you're owed.

By examining your early, normal, and delayed benefits, this tool can help you figure out the monetary advantages of delayed versus early benefits.

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