Social Security provides the economic foundation for over 48 million Americans,including retirees and disabled individuals, as well as the spouses and families of covered workers. In a nutshell, Social Security replaces a percentage of a worker's pre-retirement income based on their lifetime earnings. To put this into perspective, Social Security accounts for more than half of the monthly income for individuals age 65 and older.
The most common question individuals ask about Social Security is, “When should I begin collecting my retirement benefits?” Unfortunately, there is no single right answer for everyone because every individual’s financial situation is different.
To help you understand when you should begin collecting Social Security benefits, let’s look at some key facts you should be familiar with:
- Most individuals earn credits during their working years, earning up to 4 credits per year.
- Most workers need 40 credits, or about 10 years of work, to qualify for Social Security benefits.
- Benefits are based on your highest-earning years.
- Benefits can start as early as age 62, but individuals who start benefits prior to their Full Retirement Age will receive a reduced benefit for the rest of their lives.
- Retirement benefits will continue to grow until age 70 if you delay starting benefits beyond Full Retirement Age.
- An individual's full retirement age depends on the year and month in which they were born. It can be anywhere between 65 and 67.
Now, let’s look at the impact of when you begin drawing your benefits. For this scenario, we’ll use an individual with a Social Security benefit of $2,000 per month at Full Retirement Age.
If that person chooses to begin drawing benefits early at age 62, they will receive about $1,400 per month, resulting in only receiving 70 percent of their full retirement amount.
If that same individual delays benefits until age 70, they will see their benefits increase to $2,400 per month, resulting in receiving 124 percent of their full retirement amount.
You may ask yourself how someone could receive more than their full retirement benefit. The reason is that an individual’s retirement benefit grows by a guaranteed 8 percent per year between their full retirement age and age 70.
The decision of when to retire is even more important and complex when you factor in other pieces of your retirement planning equation, especially since it can impact not only yourself, but your family as well. Consult an advisor before deciding when to begin your Social Security benefits to understand how your Social Security withdrawal strategy will impact your retirement plan.
For more Financial Insights on topics to help you make informed decisions and plan for the future, visit the NSB Wealth Management web page.
Contact a wealth advisor at 888-673-3380 or email WealthSelect@zionswealthadvisors.com.
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