Eligibility for Social Security benefits is primarily based on your work history and your age. Typically, these retirement benefits are available to individuals who have contributed to the Social Security system through payroll taxes during their working years, and you can start receiving Social Security as early as age 62. But what happens if you decide to delay your benefits? It might work out even better for you!
The Retirement Age and Social Security Benefits
Individuals who put off their start date for Social Security can see checks that are approximately 8 percent higher each year that they “delay.” This can be a strategic move that really pays off. You just need to be aware of your financial situation, and understand the age restrictions.
Your full retirement age is based on your date of birth. For those born between 1943 and 1954, your full Social Security benefit is available at age 66. Individuals born after 1960 won’t reach their full retirement age until age 67, where those born between 1954 and 1960 will hit the mark somewhere between age 66 and 67, depending on their birth month. (The full retirement age goes up by two months for each birth year after 1954.)
Knowing your “full retirement age” is key because it’s what you’ll use to determine your maximum Social Security benefit amount. You can still start receiving Social Security at age 62, but that means it will come with an early benefit penalty that will permanently reduce the amount paid to you.
If you want to avoid the penalty for taking Social Security early, then you must wait to receive your first check at your full retirement age. The real “win” scenario, though, comes when you opt for a bonus payment amount. Instead of receiving your benefits at full retirement, you might want to wait until you reach age 70. This is when Social Security benefits are maximized.
Possible Reasons to Delay Your Payments
For each year that you delay receiving benefits past your full retirement age, your benefit will increase by 8 percent. This can give you some nice flexibility. You can choose to delay by one year, or every year until age 70 for the bonus. After that, the benefit is capped.
There are a few different reasons that you might be motivated to wait and watch your Social Security benefit increase. Maybe you don’t need the income at age 66 or 67 because you’re still working. Or you might have a few reliable alternate sources of income, even at age 68 or 69. That 8 percent boost might be worth the wait!
When you’re in good health and expect to live a long life, delaying your first Social Security benefit could be an easy way to continue planning and saving for the future. Of course, the opposite could also be true. If the benefit would help you cover some of your bills and you have a shorter life expectancy, then taking your Social Security early, before full retirement age, could be the best move—even with the penalty.
It’s just smart to keep in mind that your Social Security retirement benefits could be taxable. If you aren’t currently at the full retirement age, then you might end up owing income tax on the benefits you’re receiving.
There are a lot of factors to consider when it comes to maximizing your Social Security. If you need help along the way, our team at NSO & Company can help you strategize and keep your tax liability low, both now and in the years to come!