One of the most important decisions you will need to make as you approach retirement is when to start taking social security. Generally, the longer you can wait to collect, the better off you will be at an older age because the amount of your monthly payment increases as you delay the start of your collection.
The earliest that you can start collecting social security is age 62. If you need the money and do not have other ways of supporting yourself, you may need to start collecting right away. However, there are financial benefits to waiting.
The Vanguard Group, Inc. recently published an article where it assumed that a 66 year-old person would collect a “full retirement” benefit of $1,000 per month from social security. They then showed how this amount changed if the person changed the time when they started collecting their benefits. More specifically, the article reported the following social security payments for specific ages: $750 (age 62); $800 (age 63); $866 (age 64); $933 (age 65); $1,000 (age 66); $1,080 (age 67); $1,160 (age 68); $1,240 (age 69); and $1,320 (age 70).
As you can see, there is a $570 per month difference between collecting social security at age 62 and age 70. This is not an insignificant difference and is increasingly more important as you age. For example, using the numbers from the article, if a person lived until age 80 and started collecting social security at age 62, their total payments would be $162,000. If that same person waited until age 70 to start collecting their total payments would be $158,400. However, if that same person lived until age 90 instead of age 80, the difference between collecting at age 62 and age 70 is $64,800.
It should also be noted that your options for working and earning money are generally better at age 62 than they are at age 70. This can weigh in favor of delaying the time when you start collecting. Thus, if you are in good health and financially secure, you should consider delaying the collection of social security to increase your monthly benefits. If your health is poor and you don’t have any other income sources, you may want to collect right away.