Retire at 65?
Are you searching for the best time to start collecting Social Security benefits? Confused about the consequences of your actions? Many of us are.
Social Security has a multitude of rules and regulations. It can be hard to figure out what they all mean, but more importantly, what do they mean to you.
What Is Your Full Retirement Age?
Full Retirement Age (FRA) is the age when Social Security deems you eligible for your full benefit. Your full benefit is not the maximum payment amount you can receive. This is often where confusion arises.
Timing is Every Thing
Everybody used to get his or her full retirement benefit from Social Security at 65. It was the golden age that workers desperately waited for. But in 1983 Congress changed the law and now the timing of your FRA depends on the year you were born.
The changes in the law slowly increase your Full Retirement Age or the age you can receive your full benefit.
Why Is It Important to Know Your Full Retirement Age?
Simply put. Your Full Retirement Age is the age that you can receive your full Social Security benefit. Should you apply before your FRA, your benefits will decrease. If you apply after your FRA, your benefits will increase.
You can apply anytime between 62 and 70, but your Full Retirement Age is what determines if you are applying early or late.
Your Date of Birth is Critical
If you were born between 1943 and 1954 your Full Retirement Age is 66. If you were born 1960 or later, your FRA is 67. If you were born 1955-1959, the age goes up two months for every year. I was born in 1956. My FRA is 66 and four months.
Advantages of Waiting until Full Retirement Age
There are advantages to waiting until your FRA.
- Your payment amount is higher. If you begin collecting before your FRA, your payment will be decreased as much as 30%. If your payment were to be $2,000 at FRA, at 62 it would go down to $1,400. This change is permanent unless you withdraw your application.
- After FRA you can suspend your benefits and reinstate them anytime you like. While suspended you accumulate Delayed Retirement Credits which can increase your benefit 8% per year for every year that you are not collecting.
- If you work, you can earn as much as you like without penalty after your FRA. Between 62 and your FRA, you can earn up to $16,920 per year without penalty. After reaching that limit, you pay $1 for every $2 earned. Whether or not you are going to work is a big factor in deciding when to apply for benefits. Many opt to wait until their FRA to avoid the penalties.
- The amount of your Social Security payment is based on your 35 highest earning years. For most of us, the later years of our careers are our highest paying ones. When you continue to work, Social Security will replace earlier low earning years with current higher earning ones. This can have a significant positive impact on your monthly payment amount.
- Another advantage to waiting until after your FRA is the retroactive payment. If you wait to apply until after your FRA, you can receive up to six months in retroactive payments. Beware though that if you do, you will lose any Delayed Retirement Credits earned during those six months.
Is it Worth It to Wait?
For many of us, it is beneficial in the long run to wait until your Full Retirement Age to begin collecting Social Security. Whether or not it’s best for you depends on your life situation.
Can you pay your bills? Do you need the money now? Can you afford to wait?
Do you want to have extra income to enjoy life during the very valuable years between 62 and 66? Many retirees want to travel, play sports, or spend time with their grandchildren while they are fit and able.
Do you have adequate funds for the future if you take a lower payment?
If you are working and want to continue to do so, depending on the amount of your income, it may be to your financial advantage to wait.
There’s no one-size-fits-all answer. Each of us must consider the facts (no lying) of our personal situation. Knowing your Full Retirement Age and what it means is necessary to make the right decision for you.