Social Security

Aaron Ammerman |

Deciding when to begin taking Social Security benefits is an important decision.  Multiple factors should be considered and your individual retirement plan should be evaluated.

It is very common for people to believe that collecting Social Security retirement benefits as soon as possible is wise.  Currently, the soonest you can collect is age 62.  This strategy may have been beneficial in the past, yet things have changed as life expectancies have continued to lengthen.  As people live longer, retirement planning must change too.  This article will help determine if waiting to collect Social Security benefits past age 62 is advantageous for you.

In the following BlackRock article, key details are considered to help you in your Social Security decision-making process.  While the laws and rules are the same for everyone, deciding when to collect benefits does not have a one-size-fits-all solution.

When Do You Qualify for Benefits?

Credits are awarded to you when you work and pay taxes according to the Federal Insurance Contributions Act (FICA).  This FICA tax is withheld from each paycheck until you have earned the taxable earnings base for the year.  These credits are based on your annual earnings and they are used toward Social Security retirement benefits. The maximum number of credits that you can accrue is four credits per year. Once you have acquired 40 credits, you are completely insured and eligible to receive Social Security retirement benefits. 

Average Indexed Monthly Earnings

An Average Indexed Monthly Earnings (AIME) is determined by averaging your best 35 years of employment.  This AIME is used to determine your PIA.  If you have worked for less than 35 years, some of the years may be counted as zeros.  Your AIME will be recalculated if you continue to work past your full retirement age. Benefits will continue to be adjusted upward if your current earnings are greater than the past 35 years. 

Cost-Of-Living Adjustments

In addition to being modified by your AIME, your social Security retirement benefits are automatically modified for Cost-Of-Living Adjustments (COLAs).  These adjustments are either positive or zero and are based on the Consumer Price Index.  They have averaged 1.5% over the past 10 years.

Collecting Benefits Earlier

If you decide to collect benefits as early as age 62, you will reduce the size of your benefits.  These reductions are permanent, will not be adjusted upward when you attain FRA, and are based on your FRA and how early you began collecting.  The greatest reduction you can receive would occur if you began collecting on your 62nd birthday.  If you decide to wait, your PIA is payable at your Full Retirement Age. 

Social Security