For Social Security benefits purposes, normal retirement age is scheduled to increase gradually to age 67 from age 65. Benefits will still be paid at the younger age, but benefit reductions will increase. You can also wait as late as age 70 to receive benefits, which will increase your benefits from 3.5 percent to eight percent annually, depending on your year of birth.
Approximately 73 percent of workers chose to start Social Security benefits at age 62 in 2007, the most recent Social Security Administration data available. However, before making that election, you should consider some factors, including:
Are you in good health and does your family have a history of longevity? From a mathematical standpoint, it takes approximately 12 years for someone electing benefits at age 65 to receive the same total benefits as someone electing reduced benefits at age 62, assuming both individuals have the same earnings. You should calculate these numbers for your situation. If you are healthy and expect to live a long life, it may be worthwhile to wait until age 65 or 70. That also means that you’ll have additional years of earnings included in your benefit calculations.
Do you plan to work after retirement? Individuals at full retirement age or older can earn any amount of wages without losing any Social Security benefits. However, between the ages of 62 and full retirement age, you lose $1 in benefits for every $2 earned over $14,640 in 2012. Thus, if you expect to earn wages substantially over that limit, you may want to delay your benefits.
Will you need to withdraw funds from tax-advantaged accounts to supplement your retirement income? One of the primary benefits of tax-advantaged accounts, including 401(k) plans and individual retirement accounts, is that your funds grow on a tax-deferred basis. It is typically best to let those funds grow untouched for as long as possible. Thus, you may want to take Social Security benefits at age 62 if it will prevent you from withdrawing funds from your tax-advantaged accounts.
Is your spouse much younger than you? If you are the primary wage earner and your spouse is significantly younger than you are, you may want to delay benefits. Spousal benefits after your death equal a percentage of your benefits. Electing to receive benefits early not only reduces your benefits, but will also reduce your spouse’s benefits after your death.