In the United States, millions of people rely on Social Security to cover their expenses during retirement. It’s no secret. It’s a system that has helped many, but it’s also true that few truly understand how it works.
Moreover, a recent study showed that more than half of Americans don’t know that the age at which they decide to start receiving these benefits directly affects how much they’ll get each month.
The importance of when you start collecting retirement benefits
It’s an important fact. Sometimes, with a small adjustment, it’s possible to increase your monthly benefit by hundreds of dollars. We’re talking about a difference of up to $740 per month in some cases. Sounds interesting, right? Let’s take a closer look.
This is key. Social Security doesn’t pay everyone the same. What you receive depends on several factors, but one of the most important is the age at which you decide to start collecting. It might seem like a small decision, but it’s not.
If you start collecting at 62, which is the minimum age, you’ll receive less money per month. Why? Because the system applies a permanent reduction to your payments for each month you start before your full retirement age (FRA). That age, by the way, is between 66 and 67, depending on when you were born.
On the other hand, if you wait until age 70 to start collecting, your payments will be significantly higher. This increase can be between 24% and 32%, which translates into a considerable difference in your monthly income.
A practical example
To put it into numbers, someone who starts collecting at 62 might receive around $1,298 per month, according to 2023 data. But if that same person waits until age 70, their payments would rise to about $2,038 monthly. That difference, $740 more per month, is no small amount.
Now, not everyone can afford to wait. That’s a fact. But even delaying your claim by a year or two can make a big difference in what you’ll receive throughout your retirement.
Is delaying always a good idea?
Delaying your benefits is a strategy that works for many people, but not for everyone. It all depends on your circumstances. For example, if you have enough savings or are in good health, it might make sense to wait to maximize your payments.
However, if you need the money sooner or prefer to enjoy your retirement years while you’re more active, starting to collect earlier might be the most logical choice.
A 2022 study by the National Bureau of Economic Research found that, from a purely financial perspective, nearly all older adults (99.4%, to be exact) could significantly increase their total income by delaying their benefits. But this type of analysis doesn’t take into account your personal goals, which are equally important.
A little-known trick to increase your benefits
There are additional strategies that can help you get more out of Social Security. For example, not many people know that there are techniques that could add up to $22,924 annually to your income. The key is to plan ahead and understand how the system works to make the most of it.
Deciding when to start collecting Social Security is a complex decision with no universally applicable solution. The important thing is to understand your options and evaluate what works best in your situation. Delaying benefits can be a way to increase your payments, but sometimes, starting earlier is the decision that allows you to enjoy your retirement more.
