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During your working years, part of your income is taxed and used for Social Security benefits for those who are retired, disabled or qualifying survivors or dependents. While Social Security payments often aren't enough to fund retirement completely, they can be a welcome reward after years of working hard and contributing to the pot.
To qualify for Social Security retirement benefits, you usually need to have worked for at least 10 years. You can claim Social Security benefits starting at 62, but you may want to delay taking Social Security to receive higher payments. The decision of whether to take Social Security early or later in retirement may come down to how urgently you need the money. Here's what you need to know.
When Can You Start Taking Social Security?
The earliest you can start receiving your Social Security benefits is at 62 years old, but you won't receive the maximum amount possible at that time. If you wait until your "full retirement age" as calculated by the Social Security Administration (SSA), you'll receive what's deemed your full benefits. Depending on when you were born, this is age 66 or 67.
If you further delay taking your Social Security between your full retirement age and age 70, you'll receive an even larger monthly benefit. However, once you hit age 70, there's no further benefit to waiting.
Keep in mind that if you want to keep working past age 62 and collect Social Security, there's a limit to how much income you can earn from a job and still receive all of your benefits. If you earn more than a certain amount, the government will withhold some of your Social Security benefits, though continuing to work means you can earn more once you do reach your full retirement age. Once you hit your full retirement age, any income you earn has no negative impact on your Social Security benefits.
Trying to decide whether to start taking your benefits early? Here are some upsides and downsides to consider:
Pros of taking Social Security early:
- You can access monthly income several years before your full retirement age.
- You can continue working while drawing benefits.
- If you don't need all of the monthly Social Security income you get, you can invest some of it to increase its value.
Cons of taking Social Security early:
- Your monthly benefit will be less than if you had waited.
- Taking Social Security before your full retirement age reduces how much income you can earn.
- You aren't eligible for Medicare until age 65, so if you retire and start taking Social Security before then, you'll need another way to get health insurance.
Should You Delay Collecting Social Security?
If you will rely on Social Security benefits in your later years but you don't need it right away, it may be ideal to wait. While you can start taking benefits at age 62, you won't receive your full benefit until age 66 or 67, so waiting could be worth it if you want or need larger monthly checks for the rest of your life.
Once you hit age 70, there's no financial benefit to waiting longer. But between your full retirement age and age 70, you can earn significantly more money by waiting. Depending on the year you were born, your payments will be 5.5% to 8% higher for each additional year you wait to take payments. (See the chart on the SSA website for your birth year.)
If you're eligible for Social Security as a widow, widower or surviving divorced spouse, you're permitted to start collecting those payments before your own Social Security retirement benefits. So one option is to start collecting those now, and delay receiving your own benefits for a higher monthly payment later.
Trying to decide whether to delay or not? Here are some factors to consider:
Pros of delaying Social Security payments:
- The longer you wait between age 62 and 70, the higher your monthly benefit amount, which is especially valuable if you expect to live a long time.
- If you want to keep working longer, delaying taking Social Security payments means your job won't impact your benefits (though there is no impact once you reach full retirement age).
- Waiting to take Social Security until you're at least 65 means you won't have a gap between employer health insurance and Medicare.
Cons of delaying Social Security payments:
- You'll need to work longer or have other sources of income to keep you financially afloat.
- If you pass away prematurely, you'll miss out on Social Security income (but your spouse could still benefit).
What Is the Maximum Social Security Benefit?
The amount you'll receive in Social Security benefits depends on your age of retirement and your lifetime earnings. It also changes each year for cost-of-living adjustments.
The federal government also only pays out up to a maximum amount. Those eligible for the maximum amount must have had earnings that exceed or equal the SSA's maximum taxable income for at least 35 working years. For 2022, the maximum taxable earnings are $147,000 per year.
For those retiring as of January 2022 and who qualify, the maximum Social Security benefits are as follows:
- At age 62: $2,365
- At age 65: $2,993
- At age 66: $3,240
- At age 67: $3,568
- At age 70: $4,194
While most workers currently pay into Social Security, unfortunately, not all of us are likely to receive its full benefits on the back end. It's estimated the SSA will experience a shortfall in the near future. Benefit reserves are likely to be exhausted by 2033, and ongoing taxes will only be enough to pay out 78% of scheduled benefits by 2034.
Policymakers have discussed adjusting taxes to make up for the shortfall, but because the future of Social Security is uncertain, younger generations shouldn't bank on surviving on it alone in retirement. Even now, according to the SSA, retirement beneficiaries currently only receive 40% of their pre-retirement income in the form of Social Security. That, plus a future reduction in benefits, means it's critical to utilize workplace retirement plans such as 401(k)s and personal options like IRAs to help supplement life after work.
How to Calculate Your Social Security Benefit
In June 2021, the average monthly benefit for retired workers was $1,555. However, this number can vary significantly since benefits are based on your birth date, retirement age and lifetime earnings. They're calculated based on your highest 35 years of earnings. The SSA has several online calculators to help you estimate your specific retirement benefit.
Be aware that if you have a workplace pension that doesn't require paying Social Security taxes, you may receive lower Social Security benefits.
How to Receive Your Full Retirement Benefit
If you want to receive your full Social Security payment, you have to wait until your "full retirement age." According to the federal government, this is when you qualify for full Social Security benefits based on your birth year:
|Full Social Security Benefit Age|
|Year of Birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
Remember that each year past your retirement age that you delay taking Social Security up until age 70, you'll receive a larger monthly payment.
Keep Your Benefits Safe
Finally becoming eligible for Social Security benefits is exciting, but it's important to be aware that fraudsters also see this as an opportunity. Social Security scams where criminals commit identity theft or steal a recipient's benefits are sadly very common. When it's time for you to start collecting benefits, familiarize yourself with common scam tactics, and consider using Experian's free credit monitoring to detect identity fraud on your credit report fast.