How to Determine the Best Time to Start Collecting Social Security

Decide when to start receiving Social Security Benefits is a big decision. The full retirement age is currently 67, but you can start drawing a pension as early as 62. With the Biggest increase in performance in 40 years Coming to 2023, you might be wondering when to start collecting payments.

There are pros and cons to both retiring early and waiting a few more years. The best place to start when making a decision is to consider your current financial situation, including any other money you’ve saved through your 401(k) over the years. IRA or other retirement investments to determine what’s best for you.

We spoke to an expert and took advice from the Social Security Administration to explain how to determine the best time to claim your benefits. For more information on Social Security, see How you can Pause payments to get more later or how can i get one new social security card.

How are social security benefits calculated?

The Social Security Administration uses your average monthly income from up to 35 years of employment to calculate your “Primary Insurance Amount,” or the benefit you would receive at full retirement age. This calculation includes income up to the “Maximum Taxable Amount,” which is $147,000 for 2022.

After determining the number of years worked, Social Security, taking inflation into account, selects the years with the highest earnings, takes the sum of those earnings, and then divides it by the total number of months worked during those years. The resulting average is then rounded down to the nearest dollar amount.

Your earnings are then indexed so that future benefits are reflected in your current standard of living and contribute to the balance inflation. This “average indexed monthly income” figure is then used to calculate your monthly benefit. The maximum Social Security benefit for someone of full retirement age in 2022 is $3,345.

If you are a spouse or ex-spouse of a person who contributed to Social Security through taxes, you may be able to claim a portion of their benefits. You can receive either this share or a payout based on your own work history, whichever is greater.

The Social Security Administration provides calculators that you can use to estimate your future benefits. Create a My Social Security account online is a great way to view your current benefits or projected retirement payouts.

When should you start collecting Social Security benefits?

The earliest you can start receiving your Social Security benefits is at age 62 — although you’ll get a smaller amount than if you wait. If you wait until you reach full retirement age (67 or later for those born in 1960 or later), you can raise more money—but in fewer years. However, everyone’s situation is different. The Social Security Administration says: “There is no single ‘best age’ for everyone and ultimately it is your choice.”

Katherine Tierney, senior retirement strategist for customer needs research at financial services firm Edward Jones, suggests asking yourself these questions: When are you doing this? want retire and when can you afford to retire?

When you can afford to retire depends on your desired lifestyle and where you will live when you retire, Tierney said. It also depends on how much you have saved for retirement and how much you contributed to your 401(k). You should also consider whether you will have other forms of income when you retire, such as a part-time job or a pension. Your health and life expectancy are other factors to consider.

Should you wait until you’re older to get a bigger payout? Or retire early with a lower payout?

Deciding whether to retire early and claim your benefits sooner or wait a few more years might be a question for you as you approach retirement age.

“Social Security can act as insurance against living longer than expected and provides some protection against inflation because your benefit is adjusted as the cost of living increases,” Tierney said. “The longer you or your spouse expect to live, the more sensible it may be to wait to claim your Social Security benefit.”

But just because you decide to wait to claim your benefits doesn’t mean you have to delay your retirement, she explained. However, you should make sure you have income from your 401(k) or other investments so you can support yourself if you delay your performance.

However, if you rely solely on Social Security benefits to cover your expenses in retirement, it might be a better choice to wait to retire and claim your benefits at a later date. You’ll get more money every month and have more time to save for retirement.

If you choose to retire early, your benefits will be reduced for each month before full retirement age. For example, if you were born in 1960 or later and retire at age 62 on a pension of $1,000 per month, your payment will be reduced to $700 (or a 30% reduction).

On the plus side, that’s still $700 you wouldn’t otherwise receive during this time if you hadn’t been collecting your Social Security benefits. So you could benefit from collecting payments over a longer period of time.

If you retire early, could you possibly run out of money?

While you’re not running out of Social Security benefits (although there is a risk that the overall Social Security money pool will start to shrink), you could be depleting your 401(k) or other retirement savings. However, you can help prevent this by being conservative with your payout rate when you retire early, Tierney said.

She recommends regularly monitoring your spending and 401(k) payout rate to ensure you don’t outlive your wealth. Refraining from an annual spending increase or spending reduction – especially when the market is down or Inflation is highas we are experiencing right now, can help ensure that your retirement provisions are not used up.

More information can be found here Social Security payment schedule and How to see your benefits online.