Deciding the best time to begin receiving your Social Security benefits is a decision every individual must address by themselves or with their family, but that does not mean there aren't a variety of tools out there that can help you determine the best way to get the most out of your Social Security. Every individual in America has a different financial situation and the time you should start drawing your Social Security benefits will depend greatly on your current and future financial outlook.
How much you saved outside of what you plan to get from Social Security, whether you have a pension, 401(k), or no retirement plan from your employment, is one of the most important factors in deciding when to begin drawing your benefits. If you have a solid financial foothold outside of your expected Social Security benefits then you have a lot more options in determining the best time to begin drawing your benefits compared to individuals who will be more reliant on their benefits.
Whether you own, rent, or are still paying off a mortgage also plays a role in determining the best time to draw your benefits. If you own a house and it is fully paid off then you may be more free to retire earlier than individuals who are still paying off their mortgages or renting their residence.
Your full retirement age depends on the year you were born, but drawing your benefits before that age does come with consequences. For example--if you were born in 1955 and wish to begin receiving your benefits at age 62, the first year you are eligible to begin receiving benefits, then you would only receive $741 out of every $1,000 you would have been eligible for had you waited to begin drawing your Social Security at the full retirement age of 67. This equates to a 25.8% reduction in lifetime benefits.
The reduction in benefits lowers for each year you wait to begin claiming your benefits. So if you waited until the age 65 to retire then your penalty would only be a 7.8% reduction in lifetime benefits. That adds up to being a lot of money in the long run. Individuals who are going to be more reliant on Social Security in their retirement may want to consider working longer to ensure they will be able to get the most out of their benefits after they retire.
Another important thing to consider is your finances outside of what you expect to receive for Social Security. Are you receiving a pension? Have a 401(k)? No retirement plan at all? Do you own, rent, or still paying off your mortgage? What about money in the bank for a rainy day? These questions and more will greatly impact your decision on when to begin drawing your Social Security benefits. It is important to have a firm understanding of your 'big picture' financial situation before choosing the best time for you to begin drawing your benefits.
In the end, it is up to the individual to determine when to begin drawing their Social Security benefits. There are a variety of factors you will need to take into account before you begin drawing your benefits, but also know that the Social Security Administration is also there to help you. Don't be afraid to ask them for assistance and guidance as you inch closer to retirement.
You can see the break down of when you would reach full retirement age by visiting the retirement planner page
on the Social Security website.