One of the biggest financial decisions most retirees have to make is when to start collecting their Social Security. Your benefits are largely based on a combination of your covered earnings throughout your career and the age at which you begin collecting them. The key trade-off is that the later you wait to collect (up until age 70), the higher each check will be, but the fewer total checks you will receive throughout your life.
That balancing act means that when to collect is a very personal choice. There are few hard and fast rules unless you happen to have a working crystal ball and can tell just how long and active your retirement will be. With that in mind, here are four signs you're ready for that first Social Security check.
No. 1: You're in the right age range
You can begin collecting your Social Security benefits at any time once you've reached your 62nd birthday. The longer you wait between 62 and 70, the larger each check will be . If you're below age 62, you cannot collect on your retirement benefit. On the flip side, if you're above age 70 and haven't started your benefit, you really should, as you get no further benefit from waiting beyond that age.
Still, if you've past age 70, not all hope is lost. You can claim six months of retroactive benefits, which will help you recover some of the money you've missed out on by waiting too long. No matter your personal circumstances, though, being in that age range between 62 and 70 clearly represents the best time to start collecting your Social Security benefits.
No. 2: You're done working
As long as you can make ends meet from your paycheck, it generally makes sense to hold off on collecting your Social Security until you've either stopped working or reached age 70. Not only will your benefit be bigger by waiting, but if you start collecting too early while you're still working, you'll face a substantial penalty.
The key age involved is your full retirement age, which if you haven't reached it yet, is somewhere between 66 and 67, depending on the year you were born. The penalty for collecting before that age while still working is pretty big. It can be as large as $1 for every $2 you earn above $18,960 within the year.
No. 3: You've got the rest of your financial foundation in place
On average, Social Security only replaces about 40% of a typical retiree's income. That's not enough for most people to live a comfortable retirement. The gap between working income and benefit levels is even larger for high-income workers, due to the bend points in Social Security's formulas that provide less benefit from higher salaries.
As a result, before you take Social Security, you should have a solid, end-to-end financial plan in place that can get you through your retirement. Consider things like where you'll live, any accommodations you'll need as you age, how you'll spend your time, and where else your cash will come from.
Ideally, Social Security will play a role in your retirement plan, rather than be your entire retirement plan. If it is all you're relying on, then try to find a way to keep working, build up both your benefit and nest egg, and get yourself in a better spot to cover your costs in your golden years.
No. 4: Your health makes collecting sooner a higher priority
As the old saying goes, “the best laid plans of mice and men often go awry.” Unfortunately, as we age, our health tends to suffer . If your health is such that you do not expect to live a long, happy, and active retirement, then it may be OK collect your Social Security benefit sooner than you'd otherwise plan.
After all, the money will only benefit you when you're around and active enough to use it. If you have good reason to expect your senior years will either be cut short or spent dealing with medical bills that will chew through your assets anyway, why not take the money sooner? Enjoy what you can with the time and health you have, and let your memories from those experiences give you comfort through the rest of your journey.
Make the most of the time and money you have available
Your Social Security benefit is designed to provide you with a lifetime base of income that can help see you through your golden years. It is not designed to make you rich. Indeed, the average retiree gets around $1,553 per month from the program. That's enough to keep most folks above the poverty line , but not provide all that much above that.
With that in mind, figuring out when you are ready to start taking that check becomes that much more straightforward. Use the four signs discussed above in your decision process, and you'll improve your chances of making a great choice for yourself and your future.
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Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.