When to Begin Receiving Social Security Benefits

By Theodore J. Sarenski, CPA/PFS, CFP

Editor: Michael David Schulman, CPA/PFS

Social Security Administration (SSA) statistics indicate that a majority of U.S. citizens elect to begin receiving Social Security benefits at age 62; see Song and Manchester, “New Evidence on Earnings and Benefit Claims Following Changes in the Retirement Earnings Test in 2000” (July 2006), available at www.ssa.gov/policy/docs/workingpapers/wp107.
pdf. Is this a wise choice? Is there an optimum age to begin receiving benefits? This column explores the answers to these questions.

An individual who reaches age 62 in 2007 has a full retirement age (FRA) of 66 (i.e., the age at which he or she would receive 100% of his or her Social Security benefits). Opting to receive benefits between ages 62 and 66 results in a reduced benefit. The reduction factor applied to the full benefit is 5/9 of 1% for each of the first 36 months that benefits begin before the FRA, plus 5/12 of 1% for each month in excess of 36 months; see “Find Your Retirement Age,” and SSA Pub. No. 05-10070, “Your Retirement Benefit: How It Is Figured” (January 2007), available at www.ssa.gov/pubs/10070.html. Individuals who turn 62 in 2007 and want to begin receiving benefits immediately will get only 75% of the benefits they would have received had they waited until age 66. There will be no change (other than cost-of-living increases) to these individuals’ benefits under their own work histories for the remainder of their lives.

Comparing Break-Even Points

The argument is sometimes made that if individuals saved all of their reduced monthly benefits from age 62 to 66, they would be far ahead of the person who waits until age 66 to begin receiving benefits. Thus, the first question is, how much confidence does the client have that Social Security will be there on retirement? And, will it provide sufficient funds to maintain his or her current standard of living? With more and more companies no longer providing pension plans, the burden of funding retirement is squarely on the retiree’s shoulders.

The tax adviser might consider an example with three assumptions: (1) a 5% after-tax return rate; (2) all funds received at either age 62 or 66 are invested; and (3) no withdrawals are made from those investments over life expectancy. The break-even point is somewhere between ages 77 and 78 (see Exhibits 1 and 2).

According to the uniform life expectancy table, life expectancy at attained age 62 is 85.5 years and at attained age 66 is 86.2 years; see Regs. Sec. 1.401 (a)(9)-9, Q&A-1. Based on these life expectancies and a break-even point around age 77, it is always better to begin to receive Social Security benefits at the FRA. But life does not always follow actuarial tables; there are other factors to consider when advising clients when to begin receiving benefits.

Weighing Other Factors

Health: What is the individual’s health status? Someone in poor health at age 62 may not live to be age 77, the statistical break-even point. Because of poor health, this individual may no longer be able to work and would need Social Security payments at age 62 to survive financially.

Earnings: What is the individual’s earnings potential? The earnings limit for someone at less than the FRA who wishes to collect Social Security benefits in 2007 is $12,960; see SSA Pub. No. 05-10069, “How Work Affects Your Benefits” (January 2007), available at www.ssa.gov/pubs/10069.html. For every $2 that individual earns in excess of $12,960, $1 will be deducted from his or her Social Security benefits; see id. Individuals with limited earnings potential could supplement their finances by continuing to work and collect Social Security benefits. Because of the earnings limit, those taking benefits before the FRA would need to earn three times their Social Security benefits for the penalty to equal the benefits they are receiving, and they would be left with no benefit.

Abilities: What are the individual’s needs? Many people would prefer to continue working as long as possible. As the U.S. employment market turns toward service jobs and away from labor-intensive jobs, that preference might become easier to meet. A laborer who has a physically demanding job may not have the luxury of working beyond age 62, because he or she is not physically able to do so, while an individual in an office or other non-labor-intensive job may not face the same physical requirements to continue working.

Marital status: What is an individual’s marital status? A spouse can receive the greater of his or her own benefit or one-half of the spouse’s benefit; see SSA Pub. No. 05-10035, “Retirement Benefits” (January 2007), available at www.ssa.gov/pubs/10035.html. Individuals can receive a spouse’s benefit only when their husband or wife has also begun collecting benefits; see id. When there is a great disparity in a couple’s earnings, or when one spouse has not been employed for long, one tactic is for the spouse who earned less to elect to receive benefits under his or her own work history at age 62. At the FRA, assuming that the higher-earning spouse is now eligible to receive benefits, the lower-earning spouse can claim spousal benefits and receive an increase if the one-half spousal benefit is greater than the benefit he or she had been receiving.

Savings: What other retirement savings does a person have? Even if individuals must retire at age 62, it might be a good idea to delay receiving benefits if they have other savings and investments to cover living costs. If an individual elects to receive early benefits at 75% of the full benefit, to come out ahead, the four-year investment return on those benefits would have to be about 8% a year. In other words, Social Security is providing a guaranteed 8% return for waiting. It might be more beneficial to delay receiving benefits and use other investments for that four-year period.


The decision about whether to take Social Security benefits at age 62 or 66 can be simply a statistical and mathematical comparison, or it can be an emotional and thought-provoking exercise. It is important for advisers to ask questions and encourage dialogue so that clients can make well-informed decisions.

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