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Social Security: Deciding When to Start Collecting Benefits? Read This

Should you start taking payments early or wait until full retirement age? We'll help you decide.

$300 cash with calculator
Figuring out when you want to retire will help you decide when to start Social Security.
Sarah Tew/CNET

Planning out your retirement and when to start receiving Social Security benefits is a decision that can affect the rest of your life. Full retirement age is currently 67, but you can start collecting benefits as early as age 62. With the biggest benefit increase in 40 years coming for 2023, you might be wondering when you should start collecting payments.

There are advantages and disadvantages, whether you decide to retire early or wait a few more years. The best place to start your decision is by examining your current financial situation, including any other money you've saved over the years through your 401(k), IRA or other retirement investments to determine what's best for you.

We spoke with an expert and took the Social Security Administration's advice into consideration to help you determine the best time to collect your benefits. For more about Social Security, learn how you can pause payments to get more money later and why SSI beneficiaries are getting their COLA increase in December.

How are Social Security benefits calculated?

The Social Security Administration uses your average monthly earnings from up to 35 years of work history to calculate your "primary insurance amount," or the benefit you'd receive at full retirement age. That calculation includes income up to the "taxable maximum" amount, which is $147,000 for 2022.

After determining the number of years worked, Social Security chooses the years with the highest earnings, taking inflation into account, takes the sum of those earnings, and then divides it by the total number of months worked during those years. The resulting average is then rounded down to the next lower dollar amount.

Your earnings are then indexed so that future benefits are reflected in the current standard of living to help offset inflation. This "average indexed monthly earnings" number is then used to calculate your monthly benefit. The maximum Social Security benefit for someone at full retirement age in 2022 is $3,345. 

If you are a spouse or ex-spouse of someone who has contributed to Social Security through taxes, you may be able to claim part of their benefits. You can either choose to receive that share or a payout based on your own work history, depending on whichever amount is greater.

The Social Security Administration provides calculators for estimating your future benefits. Creating a My Social Security account online is a great way to see your current benefits or expected payouts for when you plan to retire.

piggy bank with cash

When's the best time to collect your Social Security benefits?

Sarah Tew/CNET

When should you start collecting Social Security benefits?

The earliest you can start receiving your Social Security benefits is at age 62 -- though you'll receive a smaller amount than if you wait. If you do wait until full retirement age (67 or later for those born in 1960 or later), you can collect more money -- but over fewer years. However, everyone's situation is different. The Social Security Administration says "there's not a single 'best age' for everyone and, ultimately, it's your choice."

Katherine Tierney, senior retirement strategist of client needs research at financial services firm Edward Jones, suggests asking yourself these questions: When do you want to retire and when can you afford to retire? 

Looking at when you can afford to retire depends on the lifestyle you want, as well as where you'll live when retired, Tierney said. It also depends on how much you've got saved for retirement and how much you've contributed to your 401(k). You should also consider if you'll have other forms of income in retirement, such as a part-time job or a pension. Your health and life expectancy are also other factors to consider. 

Should you wait until you're older to get a bigger payout? Or retire early with a smaller payout?

Deciding whether to retire early and claim your benefits sooner or wait a few more years might be a question on your mind if you're close to retirement age. 

"Social Security can act as insurance against living longer than you anticipate, and it provides some inflation protection since your benefit is adjusted for cost-of-living increases," Tierney said. "The longer you or your spouse expect to live, the more it may make sense to wait to claim your Social Security benefit."

But just because you decide to wait to claim your benefits doesn't mean you have to delay your retirement, she explained. However, you should make sure you've got income coming in from your 401(k) or other investments so you can afford your living expenses if you delay claiming your benefit. 

However, if you're solely relying on Social Security benefits to pay for your expenses in retirement, waiting to retire and claiming your benefits at a later date could be a better choice. You'll receive more money each month and you'll have more time to save for retirement.

Also, if you choose to retire early, your benefits will be reduced for each month before full retirement age. For instance, if you were born in 1960 or later and retire at age 62 with a retirement benefit of $1,000 per month, your payment would be reduced to $700 (or a 30% reduction). 

On the plus side, that's still $700 you would otherwise not receive during that time if you didn't draw your Social Security benefits. So you might benefit from collecting payments over a longer period of time.

examining cash with a magnifying glass

Is it possible to run out of money after retiring early?

Sarah Tew/CNET

If you retire early, could you potentially run out of money?

While you won't run out of Social Security benefits (although there is a threat that the entire Social Security pool of money may start to shrink), you could exhaust your 401(k) or other retirement savings. However, you can help prevent that by being conservative with your withdrawal rate if you retire early, Tierney said.

She recommends regularly monitoring your spending and 401(k) withdrawal rate so you don't outlive your assets. Forgoing an annual spending increase or reducing spending -- especially when the market is down or inflation is high, like we're experiencing now -- can help avoid depleting your retirement savings.

For more information, here's the Social Security payment schedule and how to see your benefits online.