Of the myriad financial decisions we face in our lives, the decision of when to begin collecting Social Security retirement benefits ranks amongst the largest. A disproportionate number of people simply begin collection as soon as they can, typically age 62. Unfortunately, for many, this most-common decision isn’t the most prudent decision.

As with the majority of major financial decisions, the best-for-you answer depends upon your own circumstances, as there are a variety of factors that influence the optimal decision.

Social Security itself is complex. Making an optimal decision isn’t generally simple. All too often, decisions are made without sufficient consideration. Understanding the ramifications of your decision can help you choose the right path.

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Retirement Age Matters

Social Security benefits are based upon where you are in relation to your full retirement age. Your full retirement age is simply the age at which Social Security provides you with your full retirement benefit. People born between 1943 and 1954 reached their full retirement age at age 66. Those born between 1954 and 1959 are scaled between age 66 and 67, two months past 66 for each year. Those born in 1960 or later will reach their full retirement age at age 67.

You don’t have to wait until you reach full retirement age. You can begin drawing your benefit as soon as age 62 — or earlier for some widows.

For an individual with a full retirement age of 66, drawing at age 62 will reduce their benefit by 25 percent. That reduction stays with them for the remainder of their life. That’s a lot to give up. Yet 62 is the most common age to begin taking Social Security.

Many people may feel they don’t have a choice to delay. They are out of work for one reason or another and don’t have sufficient resources to even consider putting off Social Security. Unfortunately, this is a common scenario. It’s also a siren calling for improved financial literacy — but I digress.

Working and Collecting Social Security Benefits

You can work and collect Social Security, but this should be done carefully. Prior to your full retirement age, earning over an indexed threshold will result in a reduction in your benefit. For 2019, individuals who will reach full retirement age after 2019 will have their Social Security benefit reduced by one dollar for each dollar they earn over $17,640. The limits are more generous if you have reached full retirement age.

The year of your retirement is an exception. You can retire without worrying about your pre-retirement earnings that year reducing your benefit.

Taxation is also a consideration for those looking to both work and collect Social Security. For an individual filing as single, 50 percent of their Social Security benefit will be included as income for tax purposes if their income falls between $25,000 and $34,000.

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These numbers become $32,000 and $44,000 for married couples. Over the upper end of those limits, 85 percent of your income is includable for income tax purposes. Clearly consideration needs to be given to taxation before starting to draw benefits while still employed.

Delaying Past Full Retirement Age

Delaying Social Security collection past full retirement age can boost your benefit. Your benefit increases by 8 percent for each year past your full retirement age, up until age 70. Someone with a full retirement age of 66 can see a 32 percent increase in their benefit by delaying until age 70.

Benefits don’t increase past that, other than cost-of-living increases.

Major Deciding Factors in Collecting Social Security Retirement Benefits

Social Security isn’t actually giving you more when you delay. They’ve got it pretty well figured out. The system is designed so the average person would collect the same amount whether they begin early or they wait. You get more per month by waiting, but they’ve figured out how many months the average person will collect. And they’re designed the numbers to work out the same. This means that health and longevity are major factors.

People in poor health or who otherwise could reasonably expect to have a shorter-than-average lifespan would benefit from beginning their Social Security earlier. By front-loading their collections they can expect to collect more due to their anticipated fewer years to collect.

People who have reason to believe they may live a longer than average life would correspondingly benefit from a tactic of delaying the start of their benefits. Since the system is designed to be neutral at typical life expectancy, the larger benefits from waiting are essentially a windfall.

Women tend to both have fewer retirement resources and longer life expectancies, so a delay tactic warrants serious consideration.

Need, as stated earlier, is unfortunately too often the deciding factor. But if you’re still a few years out, you can try to put yourself in a position where the decision isn’t being made for you.

The “Save It and Invest” Myth

Social Security seems to neglect the time value of money in their analysis, which would appear to lead to opportunity. Theoretically, you could begin drawing Social Security early, invest it rather than spend it, and end up ahead. There are two inherent problems with this approach.

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People who have spent the entire careers working and accumulated little or no retirement savings shouldn’t think they’re somehow going to be able to save a good portion of their now lower income for the future. That’s the thinking that is referred to as a definition of insanity — doing the same thing and expecting different results.

If you can’t save when you’re making $4,000 per month, you’re not going to miraculously be able to save a portion of something like $1,500.

Those who can afford to take Social Security and save it will likewise generally find it to be a poor idea. Usually, they are drawing enough income that their Social Security benefit would be mostly taxable, and the strategy would become far less effective.

Final Thoughts on Collecting Social Security Retirement Benefits

The Social Security Administration has a wealth of information available on its website.

You may recall a few years back when Social Security mailed you a statement every year detailing your earnings history and showing you your projected future benefit. They stopped that for cost reasons. But you can set up an account on the website and request a copy.

Your health, gender, expected longevity, and financial resources are all factors to consider before making a decision to begin collecting retirement Social Security. Most people start too soon because they didn’t or couldn’t better prepare themselves. You can take steps to put yourself in control and be able to make the best decision for yourself when the time comes.