Much has been said about delaying Social Security benefits.

Taking benefits at age 62 versus waiting until full retirement age makes a significant difference, and so does waiting until age 70 to start claiming. Should you delay? As in most financial planning, it depends.

Key Takeaways

  • Starting benefits at age 62 versus waiting until full retirement age or longer makes a significant difference.
  • Working and taking benefits before full retirement age could push one over the annual earnings limit, at which point benefits decrease.
  • The question is whether the benefit of cash flow now outweighs the larger benefit gained by waiting.

Here are some of the factors to consider.

Do You Have an Immediate Need for the Money?

Waiting until full retirement age (66 years old for many, 67 for those born in 1960 or later) results in a benefit some 30% higher than taking benefits at age 62. Waiting until age 70 results in a benefit about another 32% higher.  

If you decide to wait to claim a larger benefit in a few years, do you have other resources to support yourself in the interim? This might include retirement accounts such as a 401(k) plan or an IRA. What about a pension, taxable investments, or cash? The big question: What is your income in this early part of retirement?

Are You Still Working?

A part- or full-time job can be a plus in early retirement, but working and taking Social Security benefits before full retirement age can also push you over the annual earnings limit, which trims benefits. For 2019, the annual earnings limit is $17,640.

Those who take Social Security at age 62 face a significant and permanent reduction in benefits compared with those who wait.

This means that those younger than full retirement age during all of 2019 lose $1 of benefits for each $2 they earn in excess of $17,640. Those reaching full retirement age during 2019 lose $1 of benefits for each $3 they earn in excess of $46,920 until the month they reach full retirement age. Note: The Social Security Administration counts only earnings before the month one reaches full retirement age.

The annual earnings limit does go away at full retirement age, but benefits may still be taxable up to 85%. If you're working and in a high-income tax bracket, you may want to delay taking benefits until your earnings are lower or until you reach age 70.

Take Cash Now or a Larger Benefit Later?

Those who take Social Security at age 62 face a significant and permanent reduction in benefits compared with those who wait. This reduction drops proportionately for each year a recipient waits between 62 and their full retirement age. As mentioned earlier, waiting until age 70 results in a permanent benefit some 32% higher than if benefits start at full retirement age. This increase is also proportional, increased every year between full retirement age and age 70.

Another wild card is life expectancy. The average life expectancy for a 65-year-old American is 17.7 years for a male and 20.3 years for a female—a long time to provide additional money if benefits were taken too early.

Longevity calculators and actuarial tables can help determine lifespans. But also look closer to home. For those whose family isn't especially long-lived—researchers seem split on whether family history predicts a long life—or who have an illness that threatens to shorten their life, taking benefits sooner rather than later might make sense.

The Bottom Line

When to take Social Security benefits is an important decision—and a complex one. Take ample time and seek advice before deciding which way to go. And keep an eye on changing benefit levels and other shifts in Social Security; these are reviewed every year.