One of the most important things you have to do as you prepare to retire is to determine the right time to start receiving Social Security payments. Given that you can start claiming benefits at 62, at your full retirement age (which is around 67), or delay until age 70. It may be hard to determine what course of action would be most beneficial for your finances. You may be thinking of whether it is better to apply early and get the money as soon as possible, or wait for better returns in the long run.
Whichever option you choose, there are always going to be some pros and cons related to that. That’s why we have compared the pros and cons of all these three options so that you can make a better decision.
Collecting Social Security at Age 62
For most people, 62 is the earliest age at which they can apply for Social Security benefits. While the idea of accessing your money sooner may sound appealing, there’s an important trade-off to consider. If you decide to begin collecting at 62, your monthly payment will be about 25 to 30 percent less than it would have been if you waited for your full retirement age.
Pros of Collecting at 62:
- You start receiving benefits earlier.
- It may help pay for things if you have to quit working early.
- If you are sick or have a shorter life expectancy, it enables you to receive the benefits at an early age.
Cons of Collecting at 62:
- Your monthly benefits will be permanently reduced.
- If you live longer, you will get less overall as compared to if you had waited.
- May restrict your financial freedom in the later stages of your retirement.
Waiting Until Full Retirement Age (Around 67)
Your full retirement age is usually 65 or 67 years, based on the year of birth. If you decide to start collecting your benefits at your full retirement age, you will get 100% of your calculated benefit. This is considered the baseline for your benefits. You will not face the early filing penalty that you would if you started claiming at age 62. But, you also will not receive the higher amount that comes with waiting until age 70 to claim.
Pros of Collecting at 67:
- You receive your full benefit without any deductions.
- It is in between the two extremes of starting early and retiring at 70 years of age.
- It is better if you are healthy and do not have an immediate need for the funds at 62.
Cons of Collecting at 67:
- You lose out on the additional advantages you would have earned if you had delayed claiming until 70.
- If you decide to retire before your full retirement age, you should have other sources of income or savings to provide for your needs.
Holding Off Until Age 70
For every year you wait past your full retirement age, you will earn delayed retirement credits that add about 8% more to your monthly payment. This means that if you delay your benefits until 70, they could be 24% higher than if you claimed them at 67.
Pros of Collecting at 70:
- You get the maximum monthly benefit, which may be 24% higher than the one at FRA.
- Good for those in good health and a longer life expectancy.
- Can assist in enhancing financial security in the post-retirement period.
Cons of Collecting at 70:
- You will have to wait longer to get the benefits which may not be desirable if you want money now.
- If your health deteriorates or you die earlier, you may not receive the higher payments for as long.
- Should have enough savings or steady income to meet the expenses up to the age of 70 years.
