When it comes to Social Security, it can be tempting to take the money and run as soon as you're eligible—typically at age 62. After all, you've likely been paying into the system for much of your working life, and you're ready to receive your benefits. Plus, guaranteed monthly income is nice to have.
But it can be a costly move. If you start taking Social Security at 62, rather than waiting until your full retirement age (FRA), you will receive reduced benefits. FRA ranges from 65 to 67, depending on the year in which you were born. (See your full retirement age.) And your annual cost-of-living adjustment (COLA) is based on your benefit. So if you begin Social Security at 62, and start with reduced benefits, your COLA will be lower too.
If you can afford it, waiting could be the better option. But, make sure to evaluate your decision based on how much you've saved for retirement and your other sources of income in retirement. While in general many people would benefit from waiting to, say, age 70 to take payments, others may need the income sooner and may lack the resources necessary to meet expenses during the delay period, or may not live long enough to reap the rewards of delaying.
Consider the following hypothetical example. Colleen is 62, with an FRA of 66. If she starts taking benefits at 62, she will receive $1,200 a month. If she waits until her FRA to collect, she will receive 33% more, or $1,600 a month in Social Security. If she waits until 70, her benefits will increase another 32%, to $2,112 a month.1 And if she were to live to age 89, her lifetime benefits would be about $38,000, or 13%, greater if she waited until age 70 to collect benefits.2 (Note: All figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and would possibly be subject to income tax.)
If you plan to claim benefits based on your spouse's work record, once you claim your spouse’s benefit you cannot delay or switch to your own later. Claiming before age 66 on a spouse’s record means you'll lose even more than claiming on your own record—the benefit reduction for a spouse is 30% vs. 25%. For instance, if you're the spouse of Colleen in the above example, you'd be eligible for only $560 a month at age 62, which is 30% less than the $800 a month you would get at your FRA of 66. Read Viewpoints: Social Security tips for couples
Your decision to take benefits early could outlive you. If you were to die before your spouse, he or she would be eligible to receive your monthly amount as a survivor benefit—if it's higher than his or her own amount. But if you take your benefits early, your spouse’s Social Security will be less for the remainder of his or her lifetime.
Broader costs to your retirement plan
It's natural to want to retire as soon as you can, but it's crucial to consider the earning and investing power you may give up if you stop working full-time and take Social Security at 62. If you leave a job with good pay and benefits, it may be difficult to ever regain that level of compensation if you need to return to work later. Of course, not everyone can keep working, but it is something to consider if you are healthy and have the opportunity to continue working.
Tip: Women often live longer than men are more likely to depend on one income when they are older. It may pay to delay. Read Viewpoints: "Women and Social Security"
Remember that while you are eligible for reduced Social Security benefits at 62, you won't be eligible for Medicare until age 65, so you will probably have to pay for private health insurance in the meantime. That can eat up a large chunk of your Social Security payments. The average yearly cost of health insurance for individuals age 55-64 was $9,466 (including $1,300 in out-of-pocket spending in 2014).3 Why cut your benefits permanently just to pay for health insurance?
But there's even more to the story. As you approach retirement, you're often at the peak of your earnings—and of your ability to save more for retirement. Keep working, and you can make "catch-up" contributions to a tax-deferred workplace savings plan like a 401(k) or 403(b) or a traditional or Roth IRA. Catch-up contributions allow you to set aside larger amounts of money for retirement.
Moreover, if you stay on the job past age 62, your Social Security benefits will increase each year, up to age 70. Delaying retirement for even a few years can offer the potential to substantially increase the size of your retirement savings and, at the same time, increase your monthly Social Security income—and increase the chances for a successful retirement. Conversely, if you stop working at 62, you will stop tax-advantaged saving opportunities and cap your Social Security benefits—and you may need to begin to draw down your savings earlier.
- Read Viewpoints: "How to get the most from Social Security"
- Watch Learning Center Video: "Social Security: 5 key considerations to know before claiming your benefit."
- Visit the SSA website to request your Social Security statement, calculate your FRA, or estimate your future retirement, disability, or survivor benefits. You can also get additional information in the FAQ section.
- Enter your estimated Social Security benefit information into the Fidelity Planning & Guidance Center to see how Social Security fits with your overall retirement plan.
- Call 800-FIDELITY to get help understanding how to maximize your Social Security benefit as a guaranteed source of income in your retirement.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
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