When it comes time to retire, many people wonder if they should begin collecting their well-earned Social Security benefits as early as possible. To help you make an informed decision, here are a few things to keep in mind.

The age of 62 is the bare minimum for claiming benefits. You can begin the application process immediately if you're 62 or older and need Social Security benefits. You may want to hold off on increasing your monthly use if your other income is sufficient to last until you are older.

What Is FRA, And What Does It Mean?

The amount of your monthly Social Security benefit is determined by various factors, including your lifetime earnings, the year you were born, and the age at which you first file your claim, all of which are time-sensitive factors.

If you begin claiming Social Security benefits when you reach your full retirement age (FRA), also known as "normal retirement age," you will receive your entire monthly amount. When Social Security began, the FRA was 65; however, it has now been raised to 67 for those born after 1960.

Calculating Social Security Benefits

Let's say your FRA is 66, and you're looking for a job. The amount you'll receive each month will be $2,000 if you begin collecting benefits at the age of 66 and receive a monthly benefit of that amount. At the age of 62, 48 months earlier than average, your monthly benefit will be reduced to 75 per cent of your total monthly benefit—also known as your "primary insurance amount." As a result, your monthly benefit will be reduced by 25 per cent to $1,500.

Once you reach the age of 66, your reduced benefit will remain unchanged. This is a lifelong benefit you'll continue to get throughout your life. It may rise slightly over time due to COLAs (cost of living adjustments). This calculator can help you figure out your FRA, the Social Security Administration's (SSA) estimate of your life expectancy for benefit calculations, a general estimate of your pension and benefits, and customised projections based on your work history.

Your Probable Life Expectancy

Our Social Security retirement planning relies heavily on our best-guess estimates of how long we will live. Even though we could perish in an accident or receive devastating medical news any day, how many years do you expect to live? What are your vital signs, such as blood pressure, cholesterol, and weight? How long have your parents and other ancestors been around?

If your life expectancy is higher than the norm, waiting to collect benefits may save you money. However, you should immediately file for help if this is the case.

Breakeven analysis might help you figure out when to file a claim. When the exclusive benefits you'd obtain by waiting to start to outweigh the total benefits you'd receive by receiving benefits earlier, the analysis can inform you that. By age 77 or so, you'll have gotten roughly the same total benefits if you start receiving $1,500 or $2,000 monthly at age 62 or 66, respectively. In the long run, the more considerable monthly benefits you'd obtain due to delaying will begin to pay off at that point.

Your lifetime benefits will be identical if you survive to the typical retirement age, according to the Social Security website, regardless of when you begin claiming benefits. Unfortunately, not everyone will live to the average age, which is why there are so many various methods of collecting benefits.

Social Security Benefits Tax Considerations

When should you apply for Social Security benefits because of these tax considerations? Most folks may not notice much of a difference in today's marginal tax rates. Even yet, tax rates and income criteria are subject to change, so you should keep in mind that if you are in a lower marginal tax band when you start collecting Social Security, you will lose less of your benefits to taxes.

Remember that your Social Security payments may be temporarily cut back if you go back to work, even part-time, while still in your FRA. In 2021 and 2022, the cut is $1 for every $2 in earned income beyond $18,960. After reaching your FRA in 2021 ($51,960 in 2022), your payments will be decreased by $1 for every $3 exceeding $50,520 in 2021 ($51,960 in 2022).

However, that money isn't gone. When you reach your FRA, the SSA will credit it to your record, resulting in a more significant benefit.