As more American Baby Boomers reach retirement age, they face the choices offered by the Social Security Administration about when to start receiving benefits.
These options include early retirement, retirement at full retirement age, or delaying retirement to age 70.
At age 62, individuals are first able to request their Social Security benefits. The amount received is a discounted amount from what would be received if a person waited until the full retirement age to receive benefits.
Retirement at Full Retirement Age (FRA) depends on when you were born. For those born in 1937 (or earlier), the FRA is 65. It then increases by two months each year, making the FRA 66 for those born from 1943 to 1954 and 67 for those born in 1960 or later.
Finally, individuals have the choice to delay payment of Social Security benefits up until the age of 70. In this case, the retiree would receive an increase in the monthly benefits payment over the amount that would be paid if that person received benefits at the full retirement age.
Your “Stop Work Age” and “Retirement Age” are Different
Your “retirement age” is the age when you begin to receive benefits from Social Security. This can be as early as 62 or as late as 70. The “stop work age” is when a person leaves the labor force and is no longer working.
Social Security benefits are paid based on an average of the highest 35 years of earnings before a person stops working. If a person works less than 35 years, the missing years count as zeros in the calculation of the average annual earnings. If a person works more than 35 years, only the highest 35 are counted to create the average annual earnings.
A person may choose to receive a reduced benefit starting from the age of 62 and up to the age of full retirement benefits.
The full retirement age used to be 65 and has gradually been increasing. As of 2017, the full retirement age increased to 67 for most people.
The reductions depend on the age when a person first starts taking benefits, as outlined below:
- Age 62: 30% reduction
- Age 63: 25% reduction
- Age 64: 20% reduction
- Age 65: 13.3% reduction
- Age 66: 6.7% reduction
Similarly, spousal benefits are reduced depending on the age when a person first starts taking benefits:
- Age 62: 67.5% reduction
- Age 63: 65% reduction
- Age 64: 62.5% reduction
- Age 65: 58.3% reduction
- Age 66: 50% reduction (50% is the maximum amount allowed for spousal benefits)
If you retire and stop working before signing up for Medicare at age 65, it’s important to be sure you’ll have healthcare coverage for the years when you are not employed and before Medicare is available to you at the age of 65.
Social Security Retirement Benefits are Incrementally Increased by Delaying Your Retirement
After reaching full retirement age, you have several choices. You can stop working altogether, or you can continue to work and receive full retirement benefits or continue to work but delay retirement benefits.
If you decide to delay benefits, you earn a credit that increases your monthly benefits payments in the future. The increase is 8% each year (for those born after 1943) up until age 70. At 70, you must start taking your benefits.
Making the best decision about when to retire and when to stop working depends on many factors, which are different for each individual. Some factors to consider include:
- Are you in good health?
- Does your family have a history of long lives?
- Do you have any other income support?
- Will you still have health insurance?
- Do you have a spouse or children who will be impacted?
- Are you entitled to benefits from another person’s Social Security account?
Your financial advisor can help with the calculations and discuss the different scenarios to help you make a good choice. Contact the financial experts at BP Financial today to discuss what retirement age is best for you.