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When Is the Most Beneficial Time To Collect Social Security Retirement Benefits?


“When should I start collecting my Social Security retirement benefits?” This is a common question we are asked as part of our annual tax consulting and planning services.

We usually respond by asking several questions related to retirement planning. These include: What age do you plan to stop working? If you plan to work past the age of 62, but before full retirement age (66 or 67), how much do you anticipate earning? If you plan to stop working before your full retirement age and are considering waiting until your full retirement age or later to start receiving retirement benefits, do you have other sources of retirement income or savings to live on? Would you consider delaying your Social Security retirement benefits until age 70? And lastly, we will ask how your health history is.

Individuals can choose to start receiving Social Security benefits as early as age 62, but the full retirement age varies between age 66 and 67 years depending on the birth year. For individuals born in 1960 or later, the full retirement is age 67. For those born before 1960, it’s 66. If someone decides to start receiving their Social Security retirement benefits at age 62, they would receive approximately 30% less in benefits per month compared to if they waited until their full retirement age. On the other hand, if someone waits until age 70 to start receiving benefits, they can receive 124% (an 8% bump each year) of their benefits at age 67.

Delaying the age you begin receiving your retirement benefits may seem like the better choice since it promises larger monthly checks. However, it is important to understand that opting for larger payments later in life also means that you will receive fewer payments throughout your lifetime. That’s why it is essential to calculate your break-even point to help determine when to apply for retirement benefits. If you start receiving benefits at age 62 instead of 67, your break-even point is approximately 78.5 years of age. If you choose to begin receiving benefits at age 62 instead of 70, your break-even point is approximately 80.5 years of age.

If you begin receiving Social Security benefits before your full retirement age and continue to work, your benefits could be reduced significantly. The Social Security Administration (SSA) will deduct $1 in benefits for every $2 you earn above the annual limit, which is $21,240 in 2023. In the year you reach your full retirement age, your benefits will be reduced by $1 for every $3 above the annual limit, which is $56,520 in 2023. Starting with the month you reach full retirement age, you can receive your benefits with no limit on your earnings if you choose to continue working.

If you decide to postpone receiving your Social Security benefits until after turning 65 years old, you should still apply for Medicare benefits within three months of your 65th birthday. Delaying it further may result in higher costs for your Medicare medical insurance (Part B) and prescription drug coverage (Part D).

Visit the Social Security website (https:/www.ssa.gov) to access several helpful charts and Retirement Age and Retirement Earnings Test Calculators.

For additional information on this topic, please contact John F. Martin, CPA/PFS, CFP at 315-472-9127 or jmartin@dmcpas.com.


Contributing author: John F. Martin, CPA/PFS, CFP®, is a tax partner at Dannible & McKee, LLP.  John has over over 36 combined years of experience providing tax compliance and consulting services to a variety of clients including multi-national corporations, closely-held companies and individuals.  For more information on this topic, you may contact John at jmartin@dmcpas.com or (315) 472-9127.