Adam Gentry, CFP®, Financial Planner
|
Key Takeaways
|
The age at which you begin to receive Social Security retirement benefits can have a real impact on the amount you receive each month in retirement. Your Commerce Trust wealth management team can help you understand the considerations around when to start receiving benefits, including conducting an analysis to understand what the benefits and considerations may be for different timing options.
How are Social Security retirement benefits determined?
The Social Security Administration typically uses a worker’s average indexed monthly earnings to calculate how much monthly retirement benefit payments will be, factoring in up to 35 years of indexed earnings. Generally, the more someone earns, the more they will receive in monthly retirement benefit payments.
If you are still working, your wages may reduce your monthly benefits if you start receiving them before your full retirement age. Depending on your earnings, a portion of your monthly benefit will be withheld. However, once you reach your full retirement age, your benefits will be recalculated to include the deducted amounts.
Up to age 70, the longer you delay receiving benefit payments, the higher your monthly benefit amount will be. Typically, your monthly benefit is determined when you start receiving payments and generally only increases through annual cost-of-living adjustments. This illustrates the importance of benefit timing, as once you begin receiving payments, your monthly benefit amount remains largely unchanged for the rest of your life.1
What is the difference between early, full, and delayed retirement?
Your full retirement age is the age when you are eligible to receive 100% of your retirement benefits. This full benefit amount is known as your primary insurance amount (PIA). Electing to receive Social Security retirement benefits before your full retirement age is considered early retirement, which results in a permanently reduced monthly benefit. In contrast, delayed retirement refers to postponing benefits beyond full retirement age, which increases your monthly benefit through delayed retirement credits until age 70.
Depending on your birth year, you will reach full retirement age between 66 and 67 years old. For simplicity, we will assume a full retirement age of 67, as this applies to individuals born in 1960 and later. For example, if your PIA is $3,000 and you start receiving benefits at age 67, you will receive $3,000 each month.
At age 62, you become eligible to start receiving your retirement benefits at a reduced amount compared to your PIA. Electing to start benefit payments between age 62 and your full retirement age is considered early retirement. Your monthly benefit is reduced by a percentage for each month before you would have reached full retirement age and can be reduced by as much as 30% of your PIA. For example, if your PIA is $3,000 and you start receiving benefits at age 62, your monthly benefit amount may be reduced as much as $900 to $2,100 a month. While early payments may seem appealing, the reduced monthly amount may significantly impact your lifetime benefits over time, depending on how long you live.
If you delay receiving retirement benefits until some age between your full retirement age and age 70, your monthly benefit amount will increase because you will receive delayed retirement credits. Your monthly benefit will reach its maximum at age 70, which can be up to 124% of your full retirement benefit. Again, in the example where your PIA is $3,000, with your delayed retirement credits, your monthly benefit could reach a maximum of $3,720 per month for the rest of your life. Past age 70, there is no further increase in your benefit amount, meaning there is no financial advantage to delaying benefits beyond that age.
Considerations for deciding when to begin receiving Social Security retirement benefits
When deciding between receiving a lower monthly benefit amount over a longer period or a higher monthly payout over a shorter timeframe, your health and expected longevity are key factors to consider. If you have a family history of longevity and are in good health, delaying benefits may result in more Social Security income over your lifetime.
Conversely, if you are in poor health or experience a sudden event that impacts your health, you may prefer to begin receiving payments starting at an earlier age given your current needs or changing circumstances, even if the monthly amount is lower than if you wait to start receiving benefits.
Consider your cash flow and liquidity needs in retirement to help you decide when to start receiving retirement benefits. If your balance sheet is comprised of mostly illiquid assets such as real estate, private equity, or closely held business interests, you may find greater value from the liquidity your Social Security retirement benefits provide and elect to receive them starting at an earlier age. If liquidity is less of a priority, it may be prudent to wait for higher monthly benefit payments.
Spousal benefits and how a spouse’s claiming age affects payment amounts
Married couples may receive Social Security retirement benefits based on their own work history or their spouse’s. For example, if you are the higher-earning individual in a marriage, your spouse may be eligible for retirement benefits of up to 50% of your PIA.
For someone to claim spousal benefits, the higher-earning spouse must file for their own retirement benefits first. Then, once the lower-earning spouse files, he or she will receive the higher of their own monthly benefit or their spousal benefit. Each spouse eligible for benefits receives their own monthly payment, whether it is based on their own work record or their spouse’s.
Assuming a full retirement age of 67, if the lower-earning spouse elects to receive spousal benefits early, starting at age 62, the maximum spousal benefit they can receive is reduced to 32.5% of the higher-earning spouse’s PIA. That percentage is fixed based on when the lower-earning spouse elects to begin receiving benefits. Earlier benefit elections result in a lower fixed amount, and later elections increase the benefit up to a maximum of 50%. Delaying spousal benefit payments beyond full retirement age does not increase the spousal benefit more than 50% of the higher-earning spouse’s PIA.
Social Security survivor benefits and factors affecting payment amounts to a surviving spouse
Qualifying spouses and ex-spouses may be eligible to receive survivor benefits when the original Social Security retirement benefit recipient passes away. The payment amount is based on the deceased spouse’s benefit. Benefits for surviving spouses may be reduced if the deceased spouse claimed benefits early or increased if they delayed claiming past full retirement age.
If a surviving spouse is eligible for their own retirement benefits and survivor benefits, they will receive the higher of the two. Once they claim their benefits, the monthly amount is typically fixed going forward. A surviving spouse can elect to receive reduced benefits at age 60, starting at 71.5% of the deceased spouse’s benefit and up to 100% when the surviving spouse reaches their full retirement age.
Children of the deceased may receive up to 75% of their late parent’s PIA, provided they meet certain requirements. Most survivor benefits are also subject to a family maximum that limits how much one family can receive.
In addition, surviving spouses may also receive a one-time lump sum death payment of $255 if they were living with the deceased or were eligible for specific Social Security benefits on the deceased spouse’s record. Children may also receive this lump sum payment if there is no surviving spouse and they are eligible for benefits based on their parent’s earnings history in the month of death.
Holistic financial planning from Commerce Trust
Determining when to start receiving Social Security benefits requires a holistic understanding of your family’s financial goals, cash flow needs, as well as the nuances of how Social Security works.
At Commerce Trust, your private wealth management team can incorporate the timing of when to start receiving social security benefits into your personalized financial plan that is informed by your retirement goals, the lifestyle you envision in retirement, and your plans for supporting your family. Our team of specialists can provide strategic guidance on benefit timing by analyzing your optimal claiming age and potential long-term outcomes to help you make well-informed decisions.
Contact Commerce Trust today to learn more about our retirement planning services and how we can assist you in achieving your retirement goals.
1 “SSA: The United States Social Security Administration,” Social Security Administration, www.ssa.gov.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.
The opinions and other information in the commentary are provided as of May 13, 2025. This summary is intended to provide general information only and may be of value to the reader and audience.
This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such.
Commerce Trust does not provide advice related to rolling over retirement accounts.
Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Commerce Trust is a division of Commerce Bank.
Investment Products: Not FDIC Insured | May Lose Value | No Bank Guarantee
