The 1 Chart You Need to Decide When to Take Social Security Benefits

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Social Security benefits provide around 33% of all income for elderly Americans. Seven in 10 singles and half of all married couples receive at least 50% of their retirement income from Social Security, while 43% of singles and almost a quarter of married couples get at least $9 out of every $10 from the Social Security Administration.

While around one-third of Americans expect Social Security to be a primary source of income, most Americans don't understand the program very well and have a lot of misconceptions. In fact, around three-quarters of Social Security beneficiaries don't know their full retirement age, and 38% of beneficiaries don't realize that if they claim benefits early, they'll likely receive a permanent reduction in benefits.

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If you're among the millions confused about what full retirement age means and uncertain about how your age at the time of retirement impacts your benefits, the chart below is for you.

This chart shows you when to take Social Security benefits

To understand the chart, there's a few key things you'll need to know about how the age at which you claim benefits impacts retirement income.

To decide when to take Social Security benefits, the first thing to know is full retirement age is the age when you'll become eligible to receive full benefits from the Social Security Administration. If you were born after 1960, full retirement age is 67. If you were born before, you can find your full retirement age here.

If you claim Social Security benefits before full retirement age (FRA), benefits are reduced. While almost 4 in 10 pre-retirees think benefits increase at FRA, even after claiming early, the reduction in benefits is permanent unless you take drastic steps such as rescinding your claim within 12 months and paying benefits back. The reduction in Social Security benefits for claiming early is calculated based on the number of months before FRA, with the reduction equal to five-ninths of 1% for the first 36 months and an additional five-twelfths of 1% for each prior month. If you claim Social Security benefits after FRA, benefits are increased by two-thirds of 1% for each month you delay, up until age 70.

While delaying claiming benefits means your monthly benefit is higher, you'll have years of missed benefits. You'll need to calculate a break-even point -- the point at which your higher benefits add up to the amount missed by claiming late. Calculate your break-even point by determining the value of benefits missed by claiming late, and dividing this by the higher monthly benefit received due to the delayed benefits. This calculation equals the number of months it takes to break even. After you've reached the break-even point, your higher monthly benefits are money you'd have missed out on by claiming early.

This chart shows the reduction or increase in benefits compared with a FRA of 67, based on the age at which you claim benefits. It also shows the number of years you'd need to receive benefits to break even, compared with claiming at age 62. It's based on a benefit of $1,404 at full retirement age, which is the average monthly Social Security benefit for workers in 2018, according to the Social Security Administration.

If you think you'll live long enough to break even, waiting to claim benefits is often the best course of action as long as it's financially feasible.

Deciding when to claim Social Security benefits

This chart should give you a clear picture of how benefits are impacted by filing early or late, as well as how long it would take to break even if you delay claiming benefits. Of course, since the reduction or increase in benefits is affected by the specific month in which you retire, calculations differ if you retire at 62 and 6 months versus exactly at 62 -- and this is true at every age.

You can visit mySocialSecurity to find out what your projected retirement benefits will be at full retirement age, versus if you retire at 62 or retire at 70. Based on your expected benefit at full retirement age, you can use the formulas described above to determine exactly what your benefits would be in the month you choose to claim benefits and you can calculate your break-even point.

Do this calculation before you decide to retire -- especially if you plan to rely on Social Security to make up a good portion of your income during retirement.

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