Social Security is a critical program that provides retirement and disability benefits to millions of Americans. While many people begin collecting Social Security benefits as soon as they’re eligible, there are some pitfalls to collecting benefits before age 65. In this article, we’ll explore some of these pitfalls and why it may be beneficial to wait until age 65 or later to collect Social Security.
Reduced benefits
One of the most significant pitfalls of collecting Social Security before age 65 is that your benefits will be reduced. The earliest age at which you can begin receiving Social Security retirement benefits is 62, but if you choose to do so, your benefits will be reduced by up to 30%. For example, if your full retirement age is 67 and you start collecting benefits at 62, your benefits will be reduced by 30% and you’ll receive just 70% of your full retirement benefit.
Limited earnings
Another potential pitfall of collecting Social Security before age 65 is that there are limits on how much you can earn without reducing your benefits. If you collect Social Security before reaching full retirement age, you can earn up to $18,960 per year (in 2021) without any reduction in your benefits. However, if you earn more than this amount, your benefits will be reduced by $1 for every $2 you earn above the limit.
Delayed retirement credits
On the other hand, if you delay collecting Social Security benefits beyond your full retirement age, you can earn delayed retirement credits that increase your benefit amount. For each year you delay collecting benefits beyond your full retirement age, you’ll receive an 8% increase in your benefit amount. This means that if your full retirement age is 67 and you delay collecting benefits until age 70, your benefit amount will increase by 24%.
Healthcare costs
Another important factor to consider when deciding when to collect Social Security is healthcare costs. If you retire before age 65, you may not be eligible for Medicare, and you’ll need to find other ways to cover your healthcare costs. This can be a significant expense, particularly if you have health issues that require ongoing treatment. Waiting until age 65 to collect Social Security will ensure that you’re eligible for Medicare, which can help reduce your healthcare costs.
In conclusion, while it may be tempting to start collecting Social Security benefits as soon as you’re eligible, there are several pitfalls to collecting benefits before age 65. Your benefits will be reduced, there are limits on how much you can earn without reducing your benefits, and you won’t be eligible for Medicare until age 65. On the other hand, delaying collecting benefits beyond your full retirement age can result in increased benefit amounts due to delayed retirement credits. It’s important to carefully consider all of these factors when making decisions about when to start collecting Social Security benefits, and to consult with a financial advisor or retirement expert to help you make the best decision for your unique situation.