How to Calculate Your Social Security Break-Even Age

As retirement nears, you may be wondering when to start taking Social Security payments. These benefits are primarily based on your earnings during your working years and your age when you start receiving benefits. You can start payments at age 62, but your checks will be reduced. If you wait, your monthly checks will increase until age 70.

Though your monthly benefit amount will be higher if you start collecting benefits at an older age, it will take awhile to receive the same total amount you would have received by starting earlier. Your break-even age is the point when drawing your payments later begins to exceed the value of starting payments early. “The most common indicator people use to determine when to collect benefits is called the break-even point,” says Chuck Czajka, a certified Social Security claiming strategist and founder of Macro Money Concepts in Stuart, Florida.

When considering the best time to begin Social Security, you can think through:

— How to calculate your Social Security break-even age.

— Your personal and family medical history.

— Your spouse’s benefits and age.

— Your desire to work.

— Other income streams.

[READ: How Much You Will Get From Social Security.]

What Is the Social Security Break-Even Age?

When you start Social Security payments early you receive less per month, but you get the benefit of receiving payments immediately. Collecting Social Security later will result in a larger monthly benefit, but it will take some time to receive as much total income as you get by starting early. “The easiest way to think of the break-even age is to think of it as the age at which you come out ahead for waiting to start Social Security benefits,” says Taylor Jessee, director of financial planning at Taylor Hoffman in Richmond, Virginia.

If you draw benefits early, the checks you receive will be less, but you will get the payments over a longer period time. By waiting, you’ll get a higher amount for a shorter period of time. Which strategy produces a higher lifetime benefit ultimately depends on how long you live.

[See: 10 Ways to Increase Your Social Security Payments.]

How to Calculate Your Social Security Break Even Age

You can use an online calculator or ask a financial advisor to determine your break-even age based on your income, age and expected benefit. For instance, perhaps your full retirement age is 67, at which time you qualify for $2,000 a month. “If you decide to start at age 62, there will be tradeoffs,” Jessee says. “Your monthly benefit is permanently reduced by up to 30%.” You will receive $600 less a month if you start payments at age 62, and your monthly benefit will be reduced to $1,400 per month. However, it will be adjusted for cost-of-living increases.

By waiting until your full retirement age, you’ll receive $2,000 a month. After that, every additional year you wait you will get an 8% increase until age 70. If you wait until 70 to begin Social Security, your benefit would increase to $2,480 each month.

Claiming at age 62 will net a total of around $470,000 in benefits through age 90. If you claim at full retirement age, you’ll receive around $552,000 by the time you turn 90. Waiting until age 70 will bring in about $595,000 by age 90. “If you start claiming at age 62, it will take until just over the age 80 to break even with what you would have received if you had claimed at full retirement age,” says Drew Parker, founder of The Complete Retirement Planner in the Seattle area.

[Read: Social Security Changes Coming in 2022.]

Other Factors That Could Influence Your Social Security Claiming Decision

While break-even calculations can be helpful, there are other factors to consider. “If everyone knew how long they’d live, timing Social Security would be a piece of cake,” Jessee says. But a Social Security claiming decision is often more nuanced.

When deciding when to claim Social Security, consider:

Your personal and family medical history. If longevity has existed in past generations, you might expect to live longer. “If you’re unhealthy, you might want to take it early,” Czajka says.

Your spouse’s benefits. If you’re married, you’ll want to think about the benefits you and your spouse will receive. “If you take it early, your survivor benefits will be reduced to your spouse,” Czajka says. “When a spouse passes, the survivor will get the higher of the two benefits.”

Your desire to work.Working while receiving Social Security payments could have an impact on your benefit. “If you continue to work and make over $19,560, you could have your benefits reduced,” Czajka says. Before your full retirement age, if you earn over $19,560 in 2022, your benefits will be temporarily reduced by $1 for every $2 you earn above the limit. When you reach your full retirement age, you can earn an unlimited amount without having your benefit temporarily reduced.

Other incomes streams. You might have a 401(k) or other accounts that will support you at the beginning of retirement and allow you to wait until later to receive Social Security. If funds are tight or you don’t have other savings, you might opt to begin payments early.

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