Social Security Retirement Benefits

There was a time when Americans were only able to receive retirement pensions from the Social Security Administration when they celebrated their 65th birthday; this was when the Social Security Act was passed by the United States Congress and implemented by the first administration of President Franklin Delano Roosevelt in 1935. It took about five years for the first Social Security pension payments to go out on a monthly basis, and the life expectancy at the time was 77 for men and 79 for women. Since then, life expectancy has changed, and this explains the intent of the Social Security Amendments of 1983, which introduced the option of taking reduced benefits starting at age 62.

Understanding the three ages at which you can claim Social Security Retirement benefits is pretty easy:

  • At the age of 62, your retirement benefit could be reduced by as much as 30% if you were born after 1960. If you were born in 1954 or earlier, the reduction is 25%. 
  • If you were born after 1960, the age at which you can receive full Social Security Retirement benefits is 67. This is known as the full retirement age, and it also applies to spousal benefits. 
  • You now have the option of waiting until your 70th birthday to claim benefits. Doing this could boost the monetary benefits you are entitled to past full retirement age, and it increases with each month that you delay your claim until you hit 70. This is known as delayed retirement credits.

It is important to note that the full retirement age stipulated by the Social Security Administration does not dictate when you will actually stop working for a living. If you choose to retire from work at the age of 40 because of a financial windfall or a comfortable situation in life, you can choose to claim Social Security pensions at age 62 or later. You don’t even need to be wealthy in order to do this; some Americans who retire from the Armed Forces at a relatively young age are able to stretch their military pensions through frugality and without having to work until they are old enough to claim Social Security at 62, 67, or 70.

Let’s run through a scenario in which a married couple claims Social Security at the age of 62, at full retirement age, and after their 70th birthday. For the sake of simplicity, we will assume that they are both 61 years old and each make $60,000 per year as of 2021; plus, their earnings over 35 years have been fully covered under Social Security. For the record, the average monthly retirement benefits received by married American couples in 2022 is $2,753. All the calculations are in today’s dollars:

  • At age 62, each spouse will receive $1,214 per month.
  • At their full retirement age, each will receive $2,043 per month.
  • By waiting until they turn 70, their monthly benefit will increase to $2,304

Should You Wait Until Full Retirement Age or Later to Claim Social Security?

If we only look at the benefit amounts in the example above, it would make perfect sense for this married couple to wait past their full retirement age in order to enter their claims; however, this does not take into consideration other life factors. From a mathematical point of view, $2,304 at 70 > $1,214 at 62, but not everyone can afford to wait based on circumstances such as their medical history, realistic life expectancy, and the ability to generate income. 

Personal financial planners look at all angles when advising clients about when they should take their Social Security pensions. Common sense goes a long way in this regard; if you have stopped working at the age of 62 because you can no longer do so, and you are running out of cash to cover household expenses, the best course of action would be to take early benefits. If you earn more than your spouse and feel that you can continue working, you would be empowered to wait until full retirement age or later, but your spouse can file beforehand. 

Perhaps the more pressing factor in this decision would be your health and realistic life expectancy of family members who will survive you. If you are in reasonably good health in your early sixties and have a family history of longevity it makes sense to wait for full retirement. Another option is an eight-year annuity where, at age 62, the retirees IRA or 401K funds are rolled over into an eight- year annuity. The payments from the annuity to carry them over until they qualify for the maximum Social Security Benefit. A CPA or CFP can help you create the best plan for your retirement goals.

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