If you’re approaching retirement age, you should already be thinking about social security.

The earliest age you can receive social security benefits is 62, and many people choose to start collecting right away. But there are benefits to waiting until you’re 65 or even 70 years old.

As long as you have paid into social security for 10 years, you are eligible to receive benefits. The amount you get each month varies from person to person, based on a percentage of your average income while you were working and making contributions to the social security fund.

Today, we’re breaking down the basics you need to know about collecting Social Security benefits.

Keep reading to learn how to estimate your retirement budget, how to calculate your benefits, and when you should start collecting.

When Can You Start Taking Social Security?

You can start receiving social security benefits as soon as you turn 62 years old. If you choose to start collecting at age 62, you will receive a reduced benefit. If you wait until your full retirement age, you will receive full benefits.

The full retirement age varies depending on the year you were born. To determine your retirement age, view this chart so you know when full benefits will kick in.

You can delay your benefits until after your full retirement age. If you do this, you will receive more per year. But, ultimately, Social Security is designed to pay out the same amount, in total, regardless of when you retire.

Estimate Your Retirement Budget

Before you decide when you should start collecting social security, create a monthly budget for your retirement. The three biggest expenses for most retirees are:

  • Housing
  • Transportation
  • Healthcare

But to fully understand your budget, you’ll also need to calculate your income during retirement.

The most common income sources for people during retirement are withdrawals from retirement savings (401k, IRA, etc.), pensions, and annuities.

Retirees can also consider selling their life insurance policy if they need more money during retirement.

In general, financial experts say that it’s safe to withdraw 4% of your retirement savings each year. So, if you have $1,000,000 saved, you should plan to withdraw about $40,000 per year.

Why is 4% the magic number? Because it’s slightly lower than the average return on stock market investments. By taking 4%, you’ll protect yourself from inflation rates as well as unfavorable bear markets.

Calculate Your Benefits

Calculating your social security benefits may seem tricky thing – but it’s actually not that difficult. The Social Security Administration has published this convenient sheet that explains exactly how it’s done. In seven short steps, you can calculate what your benefits and payouts will be each month.

To calculate your benefits, the SSA averages your monthly earnings for the 35 years in which you earned the most income. They use a specific formula to calculate your basic benefit and arrive at your “primary insurance amount.”

To quote the SSA directly on the benefits calculator worksheet:

“…you will see that you get a percentage of your average indexed monthly earnings. To be more precise, you get 90% of earnings up to $895, 32% of earnings between $895 and $5,397, and 15% of earnings over that amount. The maximum amount you can earn changes every year, but for a person retiring at full retirement age in 2018, that max amount is $2,788.”

In addition to the SSA worksheet, they also have a calculator that you can use to determine what your benefits will be. Keep in mind it’s not an exact calculation – it’s just an estimate. But you can plug in the date you plan to retire and adjust for inflation to see what your benefits are likely to be.

Consider Your Health and Life Expectancy

For many people, health plays a big role in determining when to start collecting social security benefits. If you’re in poor health and don’t think you’ll have a lengthy lifespan, you may want to take your benefits as early as you can (at age 62).

If you’re in poor health, it’s usually best to start collecting early in order to get the maximum out of the SSA. If you wait until you’re 66 or 70 and pass away soon after, you’ll lose out on money you could have had and enjoyed before death.

Alternatively, if you expect a long and active retirement, consider delaying your benefits.

Putting it All Together

In an ideal world, you’ll have a hefty 401k and pension so that you can live a comfortable lifestyle long into your retirement years. But if you didn’t plan ahead, there’s not much you can do about it if your retirement age is quickly approaching.

To know what your financial situation will look like in your later years, calculate everything we outlined above. Figure out how much income you will have from retirement funds and pensions. Estimate your expenses to determine how much money you will need. Then, calculate your social security benefits to make sure that those will fill in the gaps.

Whenever you’re estimating retirement incomes, budgets, and expenses, be sure to build in a buffer. Unexpected expenses, such as large medical bills, can pop up at any time, so be prepared to cover extra expenses if need be.

If and when unexpected medical expenses arise, there are a few things you can do. First of all, check to make sure your bill is correct. If it is correct, there may be times when you can negotiate your medical debt to pay a lower rate. And if you’re really in a bind, look into applying for an assistance program. Read more about how to handle unexpected medical bills here.

So, is it better to start collecting your benefits at age 62, 66, or 70?

The answer is different for everyone.

If you collect at 62, you’ll receive a reduced benefit. If you wait until your retirement age, which is currently 66 years and 4 months, you’ll receive your full benefits. And if you can hold off until you’re 70, you’ll receive more money per month to account for the years that you were eligible to collect but didn’t. Retirees who collect at age 70 can receive as much as 8% more per month for waiting.

Decide if your income from annuities, pensions, and retirement plans is enough to cover your expenses from age 62 to 70.

If you’re in good health and you can cover your monthly expenses, you may want to consider waiting until age 70 to collect.


Richard Reich
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