Dear Rusty: I’m 63 years old. What are the benefits or negatives of retiring now? How do I begin the process? Signed: Tired of Working
Dear Tired: Your first question is quite open-ended, but I can give you the basics. Your Social Security benefit is based upon something called your “primary insurance amount” (PIA), which is the amount you would get if you claimed at your full retirement age (66 years and 4 months for you). Your PIA is based upon the highest-earning 35 years in your lifetime working career (past earnings are adjusted for inflation).
If you claim benefits before you reach your full retirement age (FRA) your benefits will be cut by about 6.7% for each full year early, but the reduction is done according to the number of months before your FRA that you claim. If you claim at your current age, your benefit will be cut by about 22%. The reduction will be slightly less for each month that you continue to wait, up to your FRA when you’ll get 100% of what you’ve earned from a lifetime of working. For reference, if you claim at age 64 the reduction will be about 18% and if you wait until you’re 65 the reduction will be about 9.7%. Conversely, if you wait beyond your full retirement age your benefit amount will grow by 8% for each full year you continue to delay, up to age 70 when your benefit amount would be 30.7% more than it would be at your FRA. But whenever you claim, that is the amount you’ll get for the rest of your life (except for cost of living adjustments (COLA) which may be applied annually).
The benefits or negatives to claiming now? Claiming now gives you money earlier, and if you need the money now, are in poor health and don’t expect at least average longevity, then that may be the right choice for you. But if you’re okay financially, are in good health and expect to live to at least average longevity (about 84 for a man your age), then you’ll get more in monthly and cumulative benefits by waiting until at least your full retirement age to claim benefits. By claiming now, the benefit reduction will be permanent. By waiting, the benefit increase will also be permanent.
Claiming before your full retirement age will also subject you to Social Security’s “earnings test” which limits the amount of money you can earn from working before they take back some of your benefits. The earnings test goes away when you reach your FRA.
If you are married, waiting longer to claim will also benefit your surviving spouse should you pass away first. Your surviving spouse will get 100% of the benefit you were receiving at your death (if they have reached full retirement age) and the longer you wait to claim, the more that survivor benefit will be.
Whenever you decide to claim, you can do so either by contacting Social Security directly (preferably by phone) or you can apply online at www.ssa.gov/retire. You will need to create your personal “My Social Security” online account first, but the online process is by far the easiest way to apply, considering that direct contact with SS often subjects you to long wait times (even on the phone).
Russell Gloor is an Association of Mature American Citizens certified social security advisor. To submit a question, visit amacfoundation.org/programs/social-security-advisory or email ssadvisor@amacfoundation.org.
