Each year, about 5.5 million people begin drawing Social Security benefits for the first time, meaning millions of us have made the decision that now’s the time.
That’s not always the easiest decision to make. When to begin receiving those monthly payments you’ve worked your entire adult life for is a very personal decision, and there are a lot of factors to consider.
Image source: Getty Images.
But in general, it can be argued that age 67 is a solid sweet spot for a few good reasons that all revolve around striking a balance between the amount you’ll receive from the government, how much you’ll be taxed on them, and how long you’ll be around to receive them.
You have a lot more control over the first two factors than the third, of course, but they all should be included in your thinking. Below, we share some of mine.
Reaching just the right age
Full retirement age (FRA) is the point when you’re entitled to all of your Social Security benefits without reductions due to being too young or making too much.
For anyone born in 1960 or later, that’s age 67. Of course, you can draw beginning at age 62, but the reductions are significant. Right now, that’s up to 30%, which would make a $1,000 payment at FRA, for example, only $700 at age 62.
There are also taxation reasons to consider here, if you keep working and/or you have significant earned income. If you’re not going to reach your full retirement age in 2024, the Social Security Administration will deduct $1 in annual benefits for every $2 you earn above the annual limit. This year, that limit is $22,320. Once you reach FRA, there’s no limit on your earnings to receive your full Social Security benefits.
In addition, those with other sources of income can have to add a portion of their Social Security to their taxable income for federal tax purposes. Some states also tax Social Security at the state level as well. (This is a good time to remind you to consider consulting with an experienced tax practitioner about what would work best for you.)
Life expectancy vs. fear of missing out
Now, if you wait past FRA to begin your Social Security payments, your retirement benefits can grow by 8% each year until age 70 when they stop growing. However, how long are you going to live, and how much will you need to live on?
The average life span for an American man is 73.5 years, and for a woman, it is 79.3 years, according to the U.S. Centers for Disease Control. How that stat affects your personal calculations on growing your future payments versus missing out on years of payments in the meantime is personal. But it’s certainly something to consider when it comes to timing the harvesting of the fruits of your labors.
Image source: Getty Images.
The certainty of death and taxes
Although Social Security, according to the IRS, is intended to replace only about 40% of your pre-retirement annual earnings, that certainty and your entitlement to it makes it a cornerstone for the nearly 50 million retired workers who are currently receiving those benefits (at an average of $1,837 per month).
As for the single reason why age 67 is the best time to begin drawing, it’s because that’s when many people reach full retirement age. That’s when the limit on your earned income goes away.
Taxes on a portion of our Social Security benefits might be inevitable for many of us. It’s about more than the math. Speaking just for me, cashing in at 67 seemed to be the sweet spot for securing that steady income stream to help ensure a more comfortable retirement, regardless of how long that might last.
