Is Taking Social Security at Age 66 Wise?

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If you were born between 1943 and 1954, your full retirement age is 66. If you haven't claimed Social Security yet, you're probably debating if you should claim at 66, or wait until age 70. It's a difficult decision, because if you claim at 66, you'll get more checks over your lifetime than you'd get if you wait, but those checks will be smaller. Is it better to claim at age 66 than at age 70? It depends. 

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A bit of background

Social Security replaces about 40% of your pre-retirement income, and in 2017, the average Social Security recipient is receiving $1,360 per month in benefits. You can claim your benefit as early as age 62, but you'll only get 100% of your benefit if you wait until your full retirement age to claim. Your full retirement age depends on your birth year, but for people born between 1943 to 1954, it's age 66.

If you wait until age 70 to claim your benefits, you can get more than 100% of your benefit amount. Social Security rewards those who wait with delayed retirement credits, and these credits increase your full retirement benefit amount by a fixed percentage per month, or 8% annually, up until age 70.

What's the best age to claim?

If your full retirement age is 66, you've already passed the youngest age at which you can claim Social Security. Nevertheless, you may still be debating whether to claim benefits early. Perhaps your health is concerning you, or you're at risk of a job loss. Or maybe your retirement goals include doing things that are more easily done when you're younger (skydiving, anyone?). If you have other sources of retirement income, you might even be considering taking your benefits early so that you can invest them, and leverage the power of compound interest to build a bigger nest egg for your heirs.

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If any of these scenarios apply to you, then the most important thing to know is that claiming your benefits before age 66 means smaller monthly checks, and potentially, a smaller haul in lifetime Social Security benefits. The amount you receive in monthly Social Security benefits is reduced by 5/9 of 1% per month for the first 36 months, and 5/12 of 1% for each additional month you claim early. For instance, if you claim at age 64, then your benefit will be about 13.3% lower than it otherwise would be at age 66.

If you don't plan on claiming early and want to collect at least 100% of your benefit amount, then you're probably weighing the pros and cons associated with claiming at age 66 or age 70. At age 66, you'll qualify for your full benefit amount, but wait until age 70, and you can get a Social Security check that's 32% bigger. If you're in good health and live a long life, then waiting and pocketing larger checks can really add up. 

For example, let's say Jim was born in 1952. His full retirement age is age 66, and his monthly full retirement benefit is $1,000. If Jim waits until age 70 to claim his Social Security, his monthly benefit will grow to $1,320 instead. In Jim's case, waiting until age 70 to claim results is an extra $3,840 per year, or an additional $57,600 in lifetime benefits, if he lives 15 more years.

Waiting can also increase the size of Jim's check in another way. Social Security uses a worker's highest 35 income-earning years to calculate their benefits, and it uses zeros in the calculation if there are less than 35 years of work history. If Jim works while he waits to claim, he can replace those zeros with income-earning years, thus boosting his monthly benefit.

If you're still not sure if you should claim at age 66 or wait until age 70, it may help to consider the following breakeven analysis. The next chart plots out how much Jim would receive in lifetime benefits at various ages, depending on when he claims.

As you can see, as long as Jim lives into his early 80s, he'll collect more in total lifetime benefits by waiting. If he passes away sooner than that, he'd come out ahead by claiming at age 66.

One more important thing to keep in mind

When choosing when to claim your benefits, remember that your decision can have a big impact on your loved ones. For example, your spouse can collect up to 50% of your benefit amount if they don't qualify for Social Security on their own record, or if they do qualify, their payment amount is less than what they'd receive on your record. Therefore, when you claim will result in a smaller or bigger check for them, too.

Furthermore, your spouse can collect survivor's benefits after your death, but they'll only receive up to what you were receiving when you were alive. This means that your claiming decision will affect how much your spouse collects in lifetime benefits, too.

Ultimately, no one can predict the future, and everyone's situation is a little bit different. Good arguments -- both financial and otherwise -- can be made for taking Social Security early, on time, or late. Therefore, the best age to claim depends on your specific circumstances, so considering all your options before claiming is the wisest choice.

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