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Should You Start Taking Your Social Security Benefits At Age 62 or Full Retirement Age?

Retirees are eligible to accept Social Security withdrawals as early as age 62 instead of having to wait until the full retirement age of 67, but you will receive a reduced benefit every month. So, should you accept the reduced befit that goes along with an early retirement? There are a lot of factors that have to be considered in your own personal decision to take the Social Security payments early or delay them if possible.

Every employee in America pays 6.2% of his or her salary into the Social Security system up to a certain cap of your salary. In order to receive benefits, a person must have worked for the equivalent of ten years while paying into the system. The full retirement age used to be 65 years of age, but with the federal government’s struggling monetary shortfalls, the current full retirement age is 67 years-old. As mentioned earlier, you can withdraw a monthly pension from Social Security starting at age 62, but you will receive a reduction your monthly benefits. Your date of birth determines the percentage amount that you will receive if you accept the early benefit; this percentage rises the closer you get to the full retirement age before beginning withdrawals. So, when should you start taking Social Security payments? Obviously, the longer you wait, the higher the monthly paycheck will be. But, this also delays retirement. Consider these factors when making your decision:

What Is Your Risk Tolerance?

If you have a low risk tolerance, you might want to consider waiting to accept full payment when you reach the full age of retirement. Waiting will help to ensure that you will have a far less chance of running out of money in your Golden Years of retirement. Retirees with a higher risk tolerance can focus on a portfolio more heavily weighted in stocks rather than bonds and Social Security payments. This portfolio will enable them to make up for the lower Social Security payments if they are successful in their portfolio. Moreover, their tolerance will allow them to stomach the stock market’s up and down swings that will inevitably take place.

How Long Do You Think You Are Going To Live?

Thinking about how long you plan to live may seem like a very morbid question or thought to consider, but people who live longer may come out ahead by delaying their Social Security benefits until they reach the standard retirement age. A person who accepts a reduced benefit every month by choosing the earlier payout will continue to lose money over the course of a long retirement. People with a history of relatives living a longer life need to strongly consider waiting and receiving the full benefits. For example, a person who was born in 1948 will turn 62 this year. Taking Social Security retirement benefits at age 62 instead of that “group’s” full retirement age of 66 years-old would result in a reduction of 25% of payouts. If this person lived a full life expectancy of 77 years-old, the average benefit from $1,171 would be reduced to $878 or a loss of $292 per month. That would equal over $52,000 during your retirement years.

How Much Do You Pay In Taxes?

In most cases, except for those with the least amount of income, Social Security benefits are taxable income. Thus, you must consider the amount of taxes you currently pay and the amount that you will pay in the future if you begin receiving payments. Will your Social Security payments put you in a higher tax bracket? Taxes are an extremely important factor that can have huge financial repercussions, so make sure not to disregard this point.

Have You Saved Enough For Retirement?

You need to evaluate your savings to determine if you have saved enough to wait until the full retirement age. Ideally, you have built up an adequate retirement portfolio and have invested as much money as possible into your retirement accounts during your working years. By doing so, this will allow you to prolong the amount of time before you need to start drawing Social Security benefits. Unfortunately, for one reason or another, there are many of us who simply will not have the necessary funds built up. Those individuals who have not saved enough for retirement may find themselves backed into a corner forcing them to take the early payment. They may need the monthly income stream as soon as it becomes available to them to fund a shortfall in lost income due to retirement or perhaps loss of job.

Final Words

Studies show that many Americans favor receiving early Social Security payments in favor of a reduced benefit over their retirement lifetime. The allure and instant gratification of retirement and getting your money several years before the full retirement age is partially to blame. But for others, it’s simply the urgent need for money the forces them to access these funds early. Whatever the case is, this choice is not one to be taken lightly. You should weigh all of the factors before you make your decision. If at all possible, you should try and wait to accept payments to maximize the amount of money you will get over the long term.

Have any of you been faced with this decision in the past? What are your thoughts on the best route to take?

(photo credit: Shutterstock)

Hank Coleman
Hank is a freelance writer, entrepreneur, and professional in the government sector. He is also a personal finance writer who is currently studying for his Certified Financial Planning (CFP) credentials. He has a Bachelor's Degree in Business Administration and a Master's in Finance.

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