Figuring Out the Right Time to Retire? Social Security Changes You Need to Know About

You’ve been paying taxes throughout your working life to support Social Security – remember the FICA line on your pay stub? Now that you’re approaching retirement, you might be realizing that the decision about when to retire is not as simple as you thought it would be in your younger years. And changes in Social Security have only added to the complexity.

Your age when you retire will impact your Social Security benefits, so it’s important to carefully think through that decision before you start planning your farewell party at work. Read on to learn more.


How the full retirement age is changing

The 65th birthday is traditionally thought of as the start of retirement, and that’s partly thanks to Social Security. When the program was established in 1935, seniors were eligible for full benefits when they reached their 65th birthday, and that eligibility age stayed the same for decades.

Amendments to the program introduced in 1983 brought numerous changes to Social Security, including gradual increases in the retirement age. Those increases meant that the full retirement age for Social Security has been going up by two-month increments over time and varies based on the year of your birth. So for example, some people reached their full retirement age when they were 65 years and two months old, others at 65 years and four months old, etc. The full retirement age is set to top out at age 67 for people born in 1960 or later.

To determine your full retirement age, check out the following table.

*If you were born on Jan. 1, your full retirement age is determined as if your birthday was in the previous year. For example, people born on Jan. 1, 1958, will reach their full retirement age at 66 and 6 months.

What if you want to collect Social Security benefits before full retirement age?

You can begin collecting Social Security benefits as early as age 62, but your monthly Social Security check will be significantly larger if you wait until you reach your full retirement age. Your check will continue growing up until you hit age 70. The increased earnings potential is enough to persuade many older adults to stick it out in the workforce a few extra years.

Consider the following example:

  • Judy was born in March 1954, which makes her full retirement age 66. She started collecting Social Security benefits when she turned 62 in 2016. As a result, she receives only 75 percent of what she would have gotten if she had waited until March 2020, when she will reach her full retirement age.
  • If Judy had waited a year after reaching her full retirement age, her Social Security check would have been even bigger – 108 percent of her full retirement age amount. And she’d pocket even more money for each year that she delayed collecting Social Security benefits up until her 70th birthday, maxing out at 132 percent.
  • To see a visual example of how this works, check out this bar graph courtesy of the Social Security Administration. And you’ll find specifics on how early or delayed retirement will impact your Social Security benefits based on the year you were born in this table.

Another consideration as you debate the right time to begin collecting Social Security benefits: If you begin collecting benefits before you reach full retirement age but continue working, be mindful that your Social Security benefit will be reduced if you earn more than an annual limit established by the Social Security Administration. In 2018, that limit is $17,040. If you begin collecting Social Security before you reach full retirement age and earn more than that limit, Social Security will take back $1 of your benefits for every $2 you earn over that limit.

The annual earnings limit and Social Security deduction change during the year you reach your full retirement age. If you will reach full retirement age in 2018, the limit on your earnings for the months before full retirement age is $45,360, and Social Security will deduct $1 in benefits for every $3 you earn above this limit.

The bottom line

You might have thought that Social Security was pretty straightforward – you turn 65 and begin getting a check in the mail. But the reality is more complicated. And your decisions about when to start receiving Social Security benefits can have long-term ripple effects on your finances, which is why experts emphasize that it’s critical to be thoughtful about these decisions rather than rushing to collect benefits as soon as you’re eligible.

Fortunately, the Social Security Administration recognizes the complexity and offers a variety of resources to help people make heads or tails of it.

“You can use Social Security’s Retirement Estimator, or create a my Social Security account and get your Social Security statement to help you decide when to start receiving retirement benefits,” said Lydia Chevere, a public affairs specialist with the Social Security Administration. “Both tools provide retirement benefit estimates based on your actual earnings record.”

You can also check out Social Security’s website as well as this blog posting on the full retirement age for more information, or speak to an independent retirement specialist who can offer personalized guidance.