12.4% of your paycheck has been funnelled into Social Security for most of your working life. As retirement approaches, you will need to think about when and how you will receive the benefits of your many contributions.

There are three ways you can elect to enroll in your social security benefits: early, full retirement age, or delayed. Each option presents its own set of results, both positive and negative depending on your situation. It is good to know that, on average, about 40% of a person’s pre-retirement income will be collected in Social Security payments. This is a significant percentage and should factor into when you wish to begin receiving your benefit. Your financial situation and desired livelihood should be at the forefront of this decision-making process. No two situations are exactly alike, and you should consult with your family and financial planner to help make the best decision that both optimizes your retirement income and increases your well being.

I have presented a few scenarios for you to consider, outlining the pros and cons of each in order to help you in the decision making process.

The Early Bird

One of the options available to you is electing to receive your Social Security benefits before your full retirement age. The IRS allows you to begin collecting payments starting at age 62. This option is quite popular among retirees due to an income-based need for the payments. There are many reasons both in support of and opposition to this option. Let’s take a closer look.

Pros

• You will be collecting your benefit over a longer-period of time.
• Your financial income may be dependent on the monthly payments.
• An illness may leave you wanting to experience adventures while you are healthy enough to enjoy them.
• Family medical history may lead you to relish in travel and other activities earlier rather than later.

Cons

• Currently, a 62-year-old collecting benefits early reduces their payment by 27%.
• Those born after 1960 will see a 30% reduction in benefits should they elect to enroll early.

Many reasons in favor of collecting early come back to a financial or health-based need. Those are not the only reasons, but the most common. Take a close look at your savings and desired lifestyle to see if collecting early is the right move for you and your family.

Right on the Money

If you do not wish to collect your benefits early and delaying them is too far off, you can enroll in Social Security at your full retirement age. This is also a popular option for many retirees, let’s find out why.

Pros

• You will receive 100% of your benefit.
• If you are an avid saver, this benefit may be supplemented by a healthy 401(k) and additional retirement account (such as an IRA or Roth IRA) leaving you plenty of retirement income options.
• Minimal risk.

Cons

• Health concerns may not allow you to wait to collect.
• Your benefit may be a necessary income source, leaving no room to wait.

For many, collecting Social Security at full retirement age is a sensible choice as it allows you to receive 100% of your benefit and can be a wonderful supplement to your retirement income.

The Eleventh Hour

Delayed collection is another option available for Social Security benefits. When someone delays taking Social Security, they wait past full retirement age, up to age 70, to begin benefits. Waiting can often pay off by increasing your monthly check substantially, but it can also leave you scraping by until then. Let’s see how waiting can affect your retirement.

Pros

• The benefit percentage increases dramatically. For example, a person born 1960 or later can receive a 24% increase in their full retirement age benefit by waiting.
• This larger sum can be a way to help take care of a surviving spouse.  
• A healthy person will be able to enjoy a maximum monetary benefit.

Cons

• Many unforeseen accidents and health issues occur as people get older. Health concerns are a good thing to weigh when deciding to delay collecting.

Social Security benefits are something you have worked for your whole life. It makes sense to put a great deal of thought into the timing of your enrollment for benefits. There are three overarching ideas surrounding your election options: health, need, and desire. It’s also important to coordinate this important decision with your other sources of retirement income (Required minimum distributions, pensions, deferred compensation plans, dividends, capital gains, etc.) in order to maximize your after-tax income.  Let these ideas act as guideposts as you navigate the way for the best retirement you can have.