In this article “When To Start Social Security Benefits“, I’m going to go over everything that you need to consider before making that very decision.
The decision of when to take Social Security is highly dependent on your circumstances. Nobody can tell you when to take Social Security benefits without having a lengthy conversation about your personal goals and financial situation.
You should NEVER go by what your neighbor is doing or what your golfing friend says, that is because their retirement plan might be completely different then yours. Let’s first understand some basics of how the system works and what the benefits are.
Basics of Social Security
The history of the our Social Security program is a fantastic history which everyone should know. You don’t appreciate something unless you know the hurdles it has gone over to become what it is.
After you are done reading this article “When To Start Social Security Benefits“, I encourage everyone to visit the following link to read the full history of this great social program.
Radical Calls to Action
The decade of the 1930s found America facing the worst economic crisis in its modern history. Millions of people were unemployed, two million adult men wandered aimlessly around the country, banks and businesses failed and the majority of the elderly in America lived in dependency. These circumstances led to many calls for change.
Many people had ideas on what should be done, some were great other just, well not so great.
HAM & EGGS
During the 1930s California was a virtual hot-house for new pension schemes, and one of the most creative (and dubious) was “Ham & Eggs.” Ham & Eggs was the brainstorm of a self-promoting huckster in-aptly named Robert Noble. The scheme was based on a call for the state government to issue special currency called “scrip” that would be paid each week to every unemployed Californian age 50 and older. Questions about the validity of the economics did not dampen the enthusiasm of the movement’s supporters, nor even did the numerous scandals, financial and otherwise, involving the movement’s leaders. The eventual form of the plan called for the state to issue “$30 every Thursday“.
The Ham & Eggs movement was based on dubious economics, it was founded and run by a succession of characters of questionable integrity, it suffered from internecine rivalries and frequent scandals, and yet, at the peak of its influence in 1938, more than a million Californians, including the state’s Governor, believed that it was the solution to the problem of income security for the aged. That such a poor candidate for a public policy would be so widely embraced is strong evidence of how hungry the public was for action to address the problem of income security for the elderly.
There is a lot other program ideas thrown around during the time. Again you can read more about them at the mentioned link above.
The Social Security Act was signed into law by President Roosevelt on August 14, 1935. In addition to several provisions for general welfare, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement.
“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”–
President Roosevelt upon signing Social Security Act
The Social Security program that was adopted relied for its core principles on the concept of “social insurance.” Social insurance was a respectable and serious intellectual tradition that began in Europe in the 19th century and was an expression of a European social welfare tradition. It was first adopted in Germany in 1889 at the urging of the famous Chancellor, Otto von Bismarck. Indeed, by the time America adopted social insurance in 1935, there were 34 nations already operating some form of social insurance program(about 20 of these were contributory programs like Social Security)
Although the definition of social insurance can vary considerably, its basic features are: the insurance principle under which a group of persons are “insured” in some way against a defined risk, and a social element which usually means that the program is shaped in part by broader social objectives, rather than being shaped solely by the self-interest of the individual participants.
Social insurance coverage can be provided for a number of different types of insured conditions, from disability and death to old-age or unemployment. One of the first American books on social insurance was by a Columbia University economics professor named Henry Seager. Seager explained the principle of old-age security based on social insurance in his 1910 book, “Social Insurance, A Program of Social Reform“:
“As changing economic conditions are rendering the dependence of old people on their descendants for support increasingly precarious, so, on the other hand, new obstacles are arising to providing for old age through voluntary saving. . . The proper method of safeguarding old age is clearly through some plan of insurance. . . for every wage earner to attempt to save enough by himself to provide for his old age is needlessly costly. The intelligent course is for him to combine with other wage earners to accumulate a common fund out of which old-age annuities may be paid to those who live long enough to need it.”
From 1937 until 1940, Social Security paid benefits in the form of a single, lump-sum payment. The purpose of these one-time payments was to provide some “payback” to those people who contributed to the program but would not participate long enough to be vested for monthly benefits. Under the 1935 law, monthly benefits were to begin in 1942, with the period 1937-1942 used both to build up the Trust Funds and to provide a minimum period for participation in order to qualify for monthly benefits.
The earliest reported applicant for a lump-sum benefit was a retired Cleveland motorman named Ernest Ackerman, who retired one day after the Social Security program began
During his one day of participation in the program, a nickel was withheld from Mr. Ackerman’s pay for Social Security, and, upon retiring, he received a lump-sum payment of 17 cents.
The average lump-sum payment during this period was $58.06. The smallest payment ever made was for 5 cents!
First Monthly Benefits
On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont, in the amount of $22.54. Miss Fuller, a Legal Secretary, retired in November 1939. She started collecting benefits in January 1940 at age 65 and lived to be 100 years old, dying in 1975.
Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.
The Story of COLAs
Most people are aware that there are annual increases in Social Security benefits to offset the effects of inflation. These increases, now known as Cost of Living Allowances (COLAs), are such an accepted feature of the program that it is difficult to imagine a time when there were no COLAs. But in fact, when Ida May Fuller received her first $22.54 benefit payment in January of 1940, this would be the same amount she would receive each month for the next 10 years. For Ida May Fuller, and the millions of other Social Security beneficiaries like her, the amount of that first benefit check was the amount they could expect to receive for life.
It was not until the 1950 Amendments that Congress first legislated an increase in benefits. Current beneficiaries had their payments recomputed and Ida May Fuller, for example, saw her monthly check increase from $22.54 to $41.30 per month.
Medicare & Other Changes
The decade of the 1960s brought major changes to the Social Security program. Under the Amendments of 1961, the age at which men are first eligible for old-age insurance was lowered to 62. The number of people receiving disability benefits more than doubled from 1961 to 1969, increasing from 742,000 to 1.7 million.
The most significant change involved the signing of the Medicare bill on July 30, 1965, by President Lyndon Johnson In the presence of former President Truman, who received the first Medicare card at the ceremony. With the signing of this bill, SSA became responsible for administering a new social insurance program that extended health coverage to almost all Americans aged 65 or older. Nearly 20 million beneficiaries enrolled in Medicare in the first 3 years of the program.
President Johnson Regarding Medicare:
“Thirty years ago, the American people made a basic decision that the later years of life should not be years of despondency and drift. The result was enactment of our Social Security program. . . . Since World War II, there has been increasing awareness of the fact that the full value of Social Security would not be realized unless provision were made to deal with the problem of costs of illnesses among our older citizens. . . . Compassion and reason dictate that this logical extension of our proven Social Security system will supply the prudent, feasible, and dignified way to free the aged from the fear of financial hardship in the event of illness.” -January 7, 1965
In the 1970s, SSA became responsible for a new program, Supplemental Security Income (SSI). In the original 1935 Social Security Act, programs were introduced for needy aged and blind individuals and, in 1950, needy disabled individuals were added. These three programs were known as the “adult categories” and were administered by State and local governments with partial Federal funding. Over the years, the State programs became more complex and inconsistent, with as many as 1,350 administrative agencies involved and payments varying more than 300% from State to State.
In 1969, President Nixon identified a need to reform these and related welfare programs to “bring reason, order, and purpose into a tangle of overlapping programs.” In the Social Security Amendments of 1972, Congress federalized the “adult categories” by creating the SSI program and assigned responsibility for it to SSA
Social Security has grown to become an essential facet of modern life. More than 90 percent of all workers are in jobs covered by Social Security. From 1940, when slightly more than 222,000 people received monthly Social Security benefits, until today, when over 65 million people receive such benefits.
Full Retirement Age
Full retirement age is the age at which a person may first become entitled to full or unreduced retirement benefits. Your Full Retirement Age is based on when you were born.
How Much Social Security Will You Get?
Here are few ways you can figure out the amount of retirement benefits from Social Security.
- You can visit your local Social Security office to get a record of your taxed earnings and an estimate of retirement benefits. This will show you what you qualify for as of now. If you keep working that will of course change.
- You can wait until you decide to start receiving benefits and let the SSA calculate the amount for you. However, this doesn’t help you plan ahead.
- You can visit the Social Security website and use one of its online benefits calculators to determine your retirement estimate based on your earnings record.
- You can calculate your own benefits using a step-by-step process. Once you understand a few basic concepts, it’s not that difficult.
The simplest way to do it is to go to your local office and get an estimate so that you have it on paper in front of you. This way you can check everything to make sure it’s right. If you like using online tools you can also use the Retirement Estimator on the Social Security website.
The estimated average Social Security retirement benefit in 2020 is $1,503 a month. The maximum benefit — the most an individual retiree can get — is $3,011 a month for someone who files for Social Security in 2020 at full retirement age.
Social Security sets a cap on how much of your income it takes into account in figuring your benefit. In 2020 the cap is $137,700 (it’s adjusted annually). Any income above that is not counted and is also not subject to Social Security taxes.
No matter where you get the numbers, they are estimates, not promises. Your actual benefit will vary, perhaps significantly, based on fluctuations in your earnings, cost-of-living adjustments, whether you continue to work after claiming benefits and changes in the Social Security law.
When Can/Should I Start My Payments?
The earliest a person can start receiving Social Security retirement benefits is at 62 years old.
The following example is if you were born between 1943 and 1954 and your full retirement age is 66. If you start receiving retirement benefits at:
- age 62, you will get 75% of the monthly benefit.
- age 65, you will get 93.3% of the monthly benefit.
When it comes to Social Security, it can be tempting to take the money and run as soon as you’re eligible typically at age 62. After all, you’ve likely been paying into the system for all of your working life, and you’re ready to receive your benefits. Plus, guaranteed monthly income is nice to have.
You have to Evaluate your decision based on how much you’ve saved for retirement, your other sources of income in retirement, and your expectations for longevity.
Are you going to be using the money to pay bills? If so, then yes you should take it as early as possible to improve your life. It’s all based on need and social security was created to help seniors stay out of poverty.
If you are still working and your making a comfortable living, you should wait and let your benefits grow to at least your full retirement age. I know a lot of people are afraid that social security will go broke in a few years, but I would not make financial decisions based on that.
Our government always waits to the last minute to fix anything that needs fixing. That’s just how they work, and we were in this spot in the 80’s when they “saved” the program. Nobody mentioned it afterwords but everyone panic before. Like with everything that we do. The next generation is going think the same think in a few decades.
What To Consider
Many people want to retire as soon as it is financially feasible to do so, but it’s crucial to consider the earning and investing power you may give up if you stop working full-time and take Social Security at 62.
If you leave a job with good pay and benefits, it may be difficult ever to regain that level of compensation if you need or want to return to work later. Of course, not everyone can keep working, but it is something to consider if you are healthy and have the opportunity to stay in the workforce, in either a full-time or part-time capacity.
Women often live longer than men, and are more likely to depend on one income when they are older. Remember, by the time you get into your 80’s, you have fewer financial options, so don’t jump at the first opportunity to claim Social Security at age 62 just because you may want to quit your current job.
Remember, if you decide to stop working at 62, you will cease tax-advantaged saving opportunities and cap your Social Security benefits throughout your retirement and you may need to begin to draw down your savings earlier than you want.