Determining when to collect Social Security benefits may be one of the most significant retirement-planning decisions you will make. It will define not only the size of your monthly benefit but also the amount of Social Security income you collect over your lifetime – proving that time really is money.

In simplest terms, your Social Security benefit amounts are based on your Primary Insurance Amount (PIA), the monthly benefit you are eligible to receive at Full Retirement Age (FRA). This number is located on page two of your Social Security statement (available at ssa.gov). For more information, see Using The Social Security Website To Get Answers.

The Cost of Collecting Too Early

You may begin collecting Social Security benefits as early as age 62 – but with a consequence. Collecting before your FRA means locking in a permanent reduction in monthly payments. Assuming your FRA is 66, your benefit would be reduced by 25% at 62. If your FRA is 67, your benefit would be reduced by 30%. Your FRA is determined by when you were born. You can find your FRA at www.ssa.gov/pubs/ageincrease.htm. This reduction will decrease for each month you wait after age 62, up until you reach your FRA.

Waiting Longer Can Maximize Social Security Benefits

Your benefits will increase for every month you wait to begin collecting beyond FRA until age 70. These monthly increases are called Delayed Retirement Credits (DRCs); they increase your benefits by 8% of your PIA annually (assuming you were born in 1943 or later). If you have an FRA of 66 and wait until age 70 to collect, your individual benefits would max out at 132% of PIA. With an FRA of 67, your individual benefits would max out at 124% of PIA if you wait until age 70 to collect.