One decision facing every future retiree is when to begin drawing Social Security. Benefit amounts for three different ages are shown on your Social Security statement that you receive each year. They are age 62 at the earliest, age 70 at the latest, and your full retirement age which varies based on your birth year but age 67 for anyone born after 1960.
Age 62 will provide you with the lowest monthly benefits. Your benefits increase approximately 7% for each additional year that you delay until they max out at age 70.
So, when should you start? There are a number of factors to consider but it is most important to view Social Security for what it is - a social insurance program.
What are we insuring against? We are insuring against the possibility of outliving our income that can be generated from our retirement savings.
Let's run thru a quick example:
Suppose your Social Security benefits are $1,500 per month starting at age 62. Using 7% to estimate your benefits at age 70, you would get somewhere in the neighborhood of $2,575 per month (or $1,075 per month more) if you waited.
Now let's say that you have $250,000 in an IRA account. On one hand, you could pay yourself the $2,575 per month from age 62 thru age 70 out of your own assets (even assuming a 0% rate of return) and then opt to start receiving benefits.
On the other hand, if you opted for the $1,500 benefit at age 62 and tried to pay yourself the difference of $1,075 out of your savings, a relatively safe withdrawal rate of 4% of your $250,000 would give you about $833 per month or $242 per month less to live on.
From this perspective, it would make sense to delay as long as possible and then receive maximum benefits guaranteed for life.
A lot of people I talk with however, view it as "It's my money. I paid into it and I'm going to start getting 'my money' back as soon as I can."
Remember I said this is a social insurance program. If everyone took this view toward other forms of insurance, we'd all be burning our houses down just to "get what we have coming to us."