If I begin collecting Social Security at the age of 62 (the minimum), I’ll get X number of dollars per month. But if I wait until I’m 66, I’ll get a greater amount each month. Is the additional amount based on the assumption that I’ll be working 4 additional years, and paying taxes for that period of time, some of which is going the SS?
Or, is the additional amount based on the fact that I’ll be 4 years closer to my life expectancy? In other words, if I do not work and have no income for those 4 years, does the amount still go up?
I don’t know the answer but if you go to the social security website they have a program that allows you to put in your own historical data and combine that with what you expect in the future to arrive at your approximate monthly payment. I think you can even download a program that will give you your precise payment using actual data combined with future hypos.
E.g. i put in my own data for the past 40 years or so and discovered that if i work to 62 i will receive 1134 a month at 62, but if i quit working at 60 i will receive 1084 a month at 62. So i think the answer to your question is a little of both, but you can put the data in for both scenarios and know for sure.
I’m sure that its a mix of both, but its tough to tell by the numbers. Social Security’s calculations take into account the average of the highest 20 (I think) years of income that you made in your lifetime.
So the only way that income would effect the numbers is if your last 4 years were your highest income earning years. Otherwise whether you make 20 grand or nothing the only thing that would really alter the amount you receive is the number of years you are closer to your own demise.
Social Security is not insurance, but it works on a paradigm close enough to the one insurance works on to draw parallels.
To make it completely oversimplified, the amount of total income needs to exceed the amount of total payout over an extended period (as with anything else, short-term net losses can be dealt with). So the rules specify that on most jobs, you need to contribute, as of course does your employer.
And at a given point, when you reach a given age with a minimum of a given number of quarters of contributions in place, you become eligible for payouts under the retirement provisions. (Note that there are other programs, like disability and surviving dependents, with differing criteria.)
The amount you’re entitled to is calculated on a complex and screwball formula, but suffice it to say that by postponing the date you begin drawing down SS benefits, you both reduce your actuarial expected payout figure and “loan them the money” for that period – both of which can function to increment your own benefits beyond the minimum.
Don’t think I have a firm cite for ya, but my understanding is that given the option it is ALWAYS in your best interest to begin drawing SS as soon as possible, even at a reduced rate. I believe the increased benefits reflect that across millions of prospective beneficiaries, a whole bunch of them will die before they reach 66 (or 66 + however long it takes to make up what you would have been receiving between age 62-66.)
Run the numbers. If you wait until you are 66, how long will it take to make up for the amount you would have received - and had the use of to spend or invest - over the preceding 4 years? And what are the chances the average person will live that long?
Back when I was working as a Claims Authorizer for the SSA (1984), it was commonly understood that 72 was the breakeven point, i.e. you would receive approximately the same total at 72 whether you started at 62 or 65 (or any time in between).
Coincidentally, I just filed for Social Security 3 days ago. I’ll get my first check in November.( I turn 62 in October).
The ‘wait until I am 66’ was never an option for me. Fast math shows the following: Monthly check will be $1532.00.
Annual amount…$18384.00
4 Year amount if I waited to reach full retirement age…
$73536.00
My full retirement amount at age 66, monthly (If I waited)…$2032.00 ($500.00 increase).
If I wait to be 66, that 73 K is gone forever.