When Should a Person Start Social Security Benefits?

Whether I like it or not (and I most certainly don’t like it), my parents are growing older. My mother is getting close to the age where she will begin to be eligible for Social Security benefits and my father is already there with his benefits already unlocked.

Naturally, one of their biggest questions is when should she start her Social Security benefits? Should she start immediately at age 62? Or should she wait for a while to receive larger benefits each month for the rest of her life?

I thought I’d walk through the ins and outs of this question on The Simple Dollar because I know that many readers are asking similar questions, both for themselves and for their spouse.

Full Benefits and Partial Benefits

Whenever you receive a statement in the mail from the Social Security Administration, it tells you what your monthly benefit will be. However, that monthly benefit does not kick in at age 62. Instead, a person can receive a partial benefit starting at age 62 or their full benefit starting at age 65 to 67 (depending on birth date).

For example, if a person was born between 1943 and 1954, that person can choose to have benefits start at age 62, but their monthly benefits for the rest of their life will be cut by 25% per month. On the other hand, that person could wait until age 66 to start benefits and would receive the full benefit for the rest of their life.

This isn’t an either-or choice, of course. A person can start benefits at age 64 and have their benefits cut by only 13.3% for the rest of their life, for example, and there are similar thresholds at almost every point along the way. A full table of all of these options is available.

Spousal Benefits

A married person has an extra perk when getting their Social Security benefits. They can either receive their full benefit or half of their spouse’s benefit, whichever is greater. For example, if someone would only receive $300 a month from their own wage earnings but their spouse is eligible to receive $1,000 a month, that person could instead receive $500 a month – half of their spouse’s benefit.

Of course, the spousal benefits are also trimmed down if you start receiving them early, as described above. If you were born between 1943 and 1954 and your benefit is going to be the “spousal” option – equal half of your spouse’s benefit – you’ll only receive 35% of your spouse’s benefit if you start receiving it at age 62, but if you wait until age 66, you’ll get the full 50% of your spouse’s benefit.

A Real Example (Similar to) My Mother

So, let’s look at a real-world example that’s fairly similar to my mother’s situation. She’s married, so the spousal benefit is available to her. However, she earned enough money in her life to earn a $1,000 benefit on her own, so we’ll use that as an example (it’s a nice round number so that the calculations are clear). She was born between 1943 and 1954, so the numbers above are accurate – if she starts benefits at age 62, she’ll only receive $750 per month. If she starts at age 64, she’ll only receive $867 per month. If she waits until age 66 to start benefits, she’ll receive $1,000 per month.

Unfortunately, this isn’t a cut and dried math problem. There are a few questions that are really relevant before deciding what to do.

To make things simpler here, I am not including inflation at all. Social Security provides cost of living increases that largely balance out with inflation, so including it makes things unnecessarily complicated and confusing, so I’m just leaving everything in today’s dollars.

First, what is her life expectancy? The longer her life expectancy, the longer she should wait to start benefits.

For example, if she were to die on her 66th birthday, she would receive $0 if she had waited for full benefits, but if she started at age 62, she would have received $36,000 in benefits and if she started at age 64, she would have received $20,808 in benefits.

On the other hand, if she were to die on her 70th birthday, she would have received $48,000 if she started at age 66 with full benefits, $62,424 if she started on her 64th birthday, and $72,000 in total benefits if she started at age 62.

What about at age 74? If she started at age 66 with full benefits, she would have received $96,000 in benefits. If she started at age 64, she would have received $104,040 in total benefits. If she had started at age 62, she would have received $108,000.

It’s right after age 74 that the best benefit begins to change.

At age 78, for example, she would have only received $144,000 in total benefits if she started at age 62 and she’d only be getting $750 a month thereafter. If she had waited until 64 to start, she would have received $145,656 in total benefits and would be receiving $867 a month thereafter. However, if she waited until age 66 for full benefits, she would have also received $144,000 in total benefits to this point and she would be receiving $1,000 a month for the rest of her life.

In other words, there’s a point around age 75 where it becomes better to have waited for the full benefit than to have cashed in early.

This is why life expectancy is so important. A good estimate of your life expectancy will allow you to make a smart answer when it comes to this question. I recommend using the Social Security Administration’s life expectancy calculator to get an estimate of how long you can expect to live.

However, using this standardized table for life expectancy, my mother should expect to live into her early eighties. In fact, that’s pretty much true for any adult woman today – you should expect, on average, to live into your early eighties.

Given that fact alone, I’d encourage people to wait until they’re eligible for full benefits before cashing in. However, that’s not the only factor to consider.

The second question they should be thinking about is what is her financial state in the event of my father’s death? This is a more complicated question to answer as it involves making a budget for that point in time. It’s both emotionally and financially demanding to figure out that situation.

How much of his pension will she continue to receive? How much will her expenses drop? Will she receive any life insurance upon his death? When all that is figured together, how much will her monthly expenses truly change – and will that reduction in expenses make up for the drop in income?

The more difficult that situation for her, the longer she should wait for benefits.

A third question to consider is what would they do with the extra benefits now? To me, this is the only truly compelling argument for earlier benefits – it would give them more financial leeway while my father is still in good health.

With that extra $750 a month, they would have a lot more financial freedom to travel a bit, splurge on a few things they’ve never really been able to splurge on before.

This is a real quality of life issue. My parents live on a fairly tight fixed income, below the $40,000 a year that is often cited as the “threshold” above which additional money does not add to happiness. If my mother cashed in her benefits starting at age 62, they would be much closer to that threshold for the years that they have remaining together, which is a very valuable thing.

A final question: what about investing early benefits? Let’s say she were to simply drop her Social Security benefit straight into an investment each month while my father is still alive. Wouldn’t that be the best route?

According to my back-of-the-envelope math, if my father lived to his average life expectancy and my mother invested all of her benefit starting at age 62 in an investment that returned 7% per year, she would “break even” with her age 66 benefits at about age 83 – not too far from her average life expectancy.

However, this assumes several things that I don’t have faith in. It assumes that they’d just put all that money into an investment each month and never spend any of it. It also assumes that the market returns 7% per year like clockwork, which I absolutely don’t trust. It’s also only beneficial if she only barely makes it to her life expectancy… when I hope she lives for a very long time beyond that.

So, What Should They Do?

Given this situation, I see two main roads that they could take. My mother could either start collecting benefits at age 62 and give my parents more financial breathing room while they both live, but this would have the drawback of making things more challenging for her in the event of my father’s death.

On the other hand, she could wait until age 66, during which they would have four more years of being relatively tight with their money, but after which they would have even more breathing room and my mother would have less worry after the passing of my father.

In my eyes, the answer to this question really hinges on predicting a monthly budget for the time after my father passes away. What does that budget look like in each situation? Is the budget with a lower income level something that she can live with? Or is it just too tight?

This is the step of the process that they’re working through right now – assembling a budget for the event that my mother becomes widowed (if my father became widowed, he’d be fine financially). If it’s just too tight, they’ll wait, but if it’s livable, I’m pretty sure they’ll start benefits as early as possible so they have as much quality time together as they can during their golden years.

There is one final factor, an additional detail that I didn’t mention here: me. Regardless of what they decide – and this is still an ongoing process – I will never allow my parents to be in a position where they are truly struggling. They do not have to worry about not having food in the cupboard or not having electricity or anything like that – I will not allow that to happen to them. I do hope that many parents have that type of support available to them as it makes decisions like this less of a high-wire act.

Their final decision is theirs to make, but I have confidence they’re making that decision with a good framework and with the right topics in mind to think and talk about.

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