There can be quite a bit of confusion about the age at which you are eligible to retire. That confusion stems from differences on when you can collect your pension, Social Security, or be eligible to enroll in Medicare.
No one can tell you when to retire, but there are some guidelines around what age you must be in order to collect your “full retirement benefits.”
How Retirement Benefits Work
You paid social security taxes your entire working life. The money you contribute during your working years goes towards benefits for people who have already retired, people who are disabled, people who have lost working family members, and dependents of beneficiaries.
That surprises some people as they think the money withheld from their paychecks is held in a personal account for later use. Any unused money will go into the Social Security fund that pays monthly benefits to you and your family when you are eligible to begin receiving retirement benefits.
Social Security replaces a percentage of the income you earned based on your lifetime income. The portion that is replaced is based on your 35 years of highest earnings.
What Is the Full Retirement Age for Getting Social Security?
“Full retirement age” is the age at which you get to claim your Social Security benefit, also called your primary insurance amount (PIA) from Social Security. You can expect to receive a standard amount based on your wages earned throughout your career. (These wages will be adjusted for inflation.) The full retirement age is 66 for individuals born in or before 1954. For individuals born in 1960 or later, the full retirement age is 67.
It’s critical to know your full retirement age since it affects when you can claim Social Security without lowering your benefits, the number of delayed retirement credits you may gain to increase them, and how much money you may make from working while getting Social Security without losing any of your benefits.
If you decide to delay receiving your retirement benefits, your benefit amount will increase.
Can I Take My Retirement Benefits Early?
Yes, you can begin receiving your Social Security benefits as early as age 62.
However, if you start receiving benefits early, your benefits are reduced by a certain percentage for each month prior to your full retirement age. (These are called early-filing penalties.)
These are the early-filing penalties you will incur if you elect to receive benefits prior to your full retirement age.
- 5/9 of 1% for each of the first 36 months prior to reaching full retirement age
- 5/12 of 1% for each subsequent month prior to reaching full retirement age
These penalties add up to a 6.7% annual reduction for each of the first three years, plus an additional 5% reduction for each following your prior to reaching full retirement age. In total, if you elect to receive Social Security at age 62, your penalties will reduce your benefits by 30%.
Can I Continue to Work After Full Retirement Age?
Yes, and you can earn as much as you want without facing any penalties or negatively affecting the amount you’ll receive in Social Security benefits when you do decide to take them.
Since your benefits are based on your 35 highest-earning years, working after full retirement age could actually increase your benefits if you are a high-earner. Even if you begin collecting benefits, the Social Security Administration will recalculate your average wage to account for any new income.
Those who began collecting Social Security benefits prior to full retirement age but then decided to continue working will be subject to the retirement earnings test (RET). This test checks to see if your earnings exceed a limit. (The limit changes each year.) If your earnings exceed the current limit, you will temporarily lose some or all of your Social Security benefits. At the time you reach full retirement age, those benefits are recalculated, and you’ll receive most of that money back.
How Do I Know When I Should File for Benefits?
It’s a personal choice to decide when to begin collecting retirement funds. If you retire and start receiving payments at your full retirement age, you’ll get the maximum amount of money. If you file early, you’ll be left with reduced benefits.
There are a couple more considerations for those who are contemplating this decision.
First, calculate your retirement budget and the amount you would receive if you filed for Social Security benefits today. Begin by creating a basic budget that takes into account your income and costs. Before you retire, consider both your actual income and expenditures, as well as your anticipated earnings and expenses after retirement. This might assist you in determining how a decreased or enhanced benefit will affect your ability to provide for your needs later on. This can also help you determine if you need to reduce any expenses or pay off any debts before retiring.
Second, think about the long-term needs of your spouse. Your decision about when to receive Social Security benefits may affect the benefits your spouse will receive after you have passed away. Surviving spouses receive the higher of the two spouses’ benefits, so it’s frequently ideal for higher-earning spouses to submit at or after their full retirement age to secure their complete or maximum potential benefit. Doing this will help minimize the reduced income the surviving spouse will experience once their loved one has passed on.
If you need help with this decision, speak to a trusted financial advisor. Make sure you are aware of all the possibilities in regards to your Social Security benefits, and then make an informed decision. After all, this decision impacts the rest of your life.
Check out our Medicare Forms and Documents Section.