If you are approaching retirement age and will qualify for Social Security benefits, you need to decide when to start collecting. You can begin as early as age 62 or as late as age 70. Within that window, your monthly receipts will increase for each month you delay taking benefits.

Many people take a passive approach to this decision, heading into retirement without an actual plan.  It is typically more of an afterthought. Having a plan and looking at your personal situation ahead of time can make a big difference in your benefit payout.

When choosing your starting date, you will need to consider the following:

  1. What is your “full retirement age” (FRA) for Social Security? 
  2. Do you plan to work until you reach your FRA? 
  3. Do you have other retirement resources, such as pensions and investments?

Full Retirement Age

Your FRA will be between 66 and 67, depending on your birth year. If you were born in 1960 or later, your full retirement age is 67. For each year before 1960, the retirement age decreases by two months. For example, if you were born in 1958, your FRA is 66 years and eight months.

If you start collecting before reaching your full retirement age, your payments will be reduced based on how early you start. The maximum reduction is 25% if your FRA is 66, and 30% if your FRA is older than 66.  That reduced benefit is for life.  You do not go back to full benefits once you reach the full retirement age.

Working While Receiving SS

Your benefits may also be reduced if you plan to continue working after you start receiving Social Security. Until you reach FRA, your benefits will be reduced by $1 for every $2 you earn above an annual limit ($15,720 in 2015). That means that if you earn $20,000 in 2015, you would have to give back $2,140 of Social Security checks you received. ($20,000 is $4,280 over the $15,720 limit.  $1 for every $2 of $4,280 = $2,140.)  You read that right, you would have to pay it back, even though you only earned $20,000 in the year.

Once you reach FRA, however, the limit on earnings no longer applies.  With this in mind, if you plan to continue working, even part time, you are likely better off not taking benefits until you reach full retirement age.

If you retire earlier than your full retirement age, it may still be beneficial to delay receiving social security benefits.  Your monthly payment will increase for each month you delay taking benefits, even beyond your FRA. So if you have a pension or other investment accounts you can draw from, you may be better off using those more heavily in the beginning.  The increases stop when you reach age 70, so there is no reason to postpone taking benefits beyond that point.

Impact on Your Spouse

The decision on timing can affect your family.  Many people do not realize that a spouse can have their benefits calculated based on the other spouse earnings.  A spouse can receive up to half the full retirement benefit of the other spouse, without reducing the amount the other spouse receives.  This is especially helpful when spouse “A” has been the breadwinner over the years, and spouse “B” may have very little in the way of Social Security credits, and so would have been receiving a smaller amount.

If you die before your spouse, your spouse’s survivor benefit may be reduced if you started receiving benefits early.  If you wait and receive benefits at full retirement age, your spouse would get the same benefit you would have received.

Medicare Considerations

While you are thinking about your Social Security timing, don’t forget to consider Medicare.  Medicare and Social Security have different timing issues.  You can, and probably should, sign up for Medicare at age 65 regardless of when you plan to start receiving your Social Security benefits.  Medicare recommends you sign up three months before you reach age 65.  If you do not enroll when you are first eligible, it could affect your benefits for as long as you have coverage.

Plan Ahead

There is a lot to consider when working on your overall retirement plan.  Most people do not realize that their choice on when to take Social Security benefits can have such a large impact on their and their spouse’s retirement income.   There are many strategies that can be used, and each will depend on your personal situation.  It is recommended to speak with an advisor to determine the best strategies to maximize your benefits.  The Social Security website, www.ssa.gov , is also a great source of general information.