Two factors play an overwhelming role in the amount of Social Security benefits you’ll see in retirement. Firstly, the amount of income you’ve earned in your lifetime and when you chose to start collecting benefits.
The more income you’ve accrued and the later you began collecting retirement benefits, the larger your checks will be from the Social Security Administration. (CBS News)
As you near your retirement years, it’s hard to make a big improvement in your lifetime earnings. However, the impact of your age when you begin collecting benefits can be more significant than you think. Even though most seniors are eligible to collect benefits as early as age 62, that’s not usually the best option. You’ll get a lot less from Social Security at that age than what you would get if you can wait until full retirement age (FRA), which is the age when you would receive unreduced benefits.
Indeed, the vast majority of retirees start taking their benefit at the wrong time, losing out on about $111,000 per household, according to a new from United Income, an online investment management and financial planning firm.
FRA is age 65 for people born before 1938. For those born from 1938 to 1942, FRA gradually increases to 65 and 10 months. For those born from 1943 to 1954, FRA is 66. For those born from 1955 to 1959, FRA gradually increases to 66 and 10 months. FRA is 67 for everyone born in 1960 and after.
If you claim benefits before reaching your FRA, you’ll receive a permanently reduced monthly benefit for the rest of your life. If you can wait until your FRA, your monthly benefits won’t be reduced. Assuming an average life expectancy, for many people the total lifetime benefits received under either scenario are financially similar, so you can’t go terribly wrong in making this decision.