The ongoing COVID-19 crisis is changing lots of things in obvious ways, such as how we get our food and what we wear when we're outside, but it has longer-term, less obvious effects, too. As my colleague Maurie Backman has pointed out, it can play a part in the critical decision we all have to make about when to start collecting our Social Security benefits.
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For each of us, the calculation is a bit different, with or without pandemic considerations. Here's a look at why you might want to start collecting those benefits early.
Social Security timing
When you start taking your benefits early or late, it's all relative to your "full retirement age," which is the age at which you're eligible to start collecting the full benefits to which you're entitled. It used to be 65 for everyone, but for those born in 1960 or later, it's now 67, and for everyone else, it's somewhere between 65 and 67.
You can start collecting your benefits as early as age 62 and as late as age 70. For every year beyond your full retirement age that you delay starting to receive retirement benefits, you'll increase their value by about 8% (until age 70), and for every year before your full retirement age that you start collecting, your benefits shrink by about 7%. The table below shows the effect of starting to collect retirement benefits early, on time, or late:
It's clear why you might delay starting to collect -- for more money. Below are a few reasons why you might nevertheless choose to start collecting early, such as age 62.
Reason No. 1: Because you must
One reason to start collecting early is hard to argue with: You might simply have to do so, because you need the money. You may have unexpectedly lost a job, as many do, or perhaps a health setback took you out of the workforce. Perhaps someone in your household fell ill or lost a job -- that hit to your household income might make Social Security income suddenly needed.
The 2019 Retirement Confidence Survey shows just how common unplanned early retirements are: "... more than 4 in 10 retirees retired earlier than they expected -- most often because of a health problem or disability or changes within their organization."
Reason No. 2: Because you think your life may not be long
This is an unpleasant reason to start collecting early, but it does apply to many of us. You may actually end up living to your 90s, but if many of your relatives have died in their 60s or 70s, it could well happen to you, too, and your not having started collecting benefits early means you will have left available dollars on the table.
It's not appreciated by many, but the Social Security payout system is designed so that for those who live an average-length life, the total benefits they collect will be roughly the same whether they start collecting early, on time, or late. After all, your checks, if you start early, will be smaller -- but you'll receive many more of them.
Starting to collect early can help you retire early -- or at least earlier than you may have hoped to -- and that can mean more years of relaxation and fun.
Reason No. 3: Because your spouse is taking benefits at 70
If you're married, you should consider more than just your own likely longevity and other factors solely related to you. Married couples have more Social Security strategies available to them than single folks do.
For example, if your earning history is considerably lower than your spouse's, your benefits will be smaller. So the two of you might opt to have you start collecting your benefits early, while you both wait until the higher earner hits 70, in order to maximize those benefits. This strategy will be appreciated when one of you passes away, because the surviving spouse gets to collect either benefit, whichever is greater. This is a good way to make sure the lower-earning spouse gets more money if and when they're ever on their own.
It's worth spending some time learning more about Social Security, so that you make smart decisions regarding critical retirement income.
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