One of the most significant decisions you will make as you get closer to retirement age is when to start your Social Security benefits. You probably already know you can begin receiving your benefits as early as age 62, but this will result in a reduced monthly benefit amount. If you wait past your full retirement age (FRA) to start receiving benefits, you can earn delayed retirement credits, increasing your monthly payment.
So, when is the best time to start getting Social Security benefits to get the most money throughout your life? A break-even calculator can help you determine your break-even age or the ideal time to begin your benefits. Keep reading as we explain how your break-even age is calculated and other factors to consider before starting your benefits. Plus, you can use our break-even calculator to determine when you should start receiving your benefits!
What Is The Social Security Break-Even Age?
The break-even point is the age at which your cumulative retirement income from Social Security is the same regardless of whether you started receiving benefits early or late. Once you pass the break-even point, the higher benefit amount will outpace the lower benefit you would receive if you started your benefits early. Remember that the sooner you start your benefits, the lower your monthly payment will be. The longer you wait, the higher your payment (until you reach age 70).
Break-even Scenario
Think about a couple of scenarios to understand the break-even age better. Suppose you notify the Social Security Administration that you wish to start your benefits at age 62, but you will only receive $1,000 monthly. Instead, you could have waited until age 66 to start your benefits and would have received $1,400 monthly. Your monthly payment is now $400 more per month. However, starting your benefits early means you have already received four years’ payments at $1,000 per month. It will take several years of higher payments to make up the difference.
Your break-even age tells you when your benefits “break even.” It tells you at what age your cumulative benefits even out. In this example, your break-even age could be 75 before the higher benefit amount finally makes up the difference from starting your benefits early. We will provide more detailed examples later in this article.
KEY TAKEAWAYS
- A Social Security break-even calculator is a planning tool for determining the best time to begin receiving Social Security retirement benefits.
- The calculator will let you run scenarios to determine how long you need to live before waiting to receive retirement benefits is more advantageous than taking benefits early.
- Remember that most break-even tools don’t factor in life expectancy, spousal benefits, earned income, or other retirement accounts.
How Does A Break-Even Calculator For Social Security Benefits Work?
When starting your retirement planning, you might wonder how a break-even calculator works. Once you understand how an SSA break-even calculator works, you will see that the calculation itself is not that complex. The calculator tracks your cumulative Social Security benefit based on different retirement ages and will tell you the age at which your cumulative benefit is the same.
Crossing Points
Starting your benefits early will lead to lower payments, while waiting until later will lead to higher payments. At some point in the future, the total amount of the larger payments will be more than the total amount of the smaller payments. The age at which these amounts cross each other is your break-even point, which is what the break-even calculator will tell you.
Key Inputs
Break-even calculators use a couple of pieces of information to calculate your break-even age. These calculators mostly use your monthly benefit amount, birthdate, and a couple of options for the age at which you decide to take Social Security.
However, these calculators do not take into account several pieces of information. That information includes future cost-of-living adjustments from Social Security, inflation, spousal benefits that your spouse might be receiving, your life expectancy, the income tax that might be due on your benefits, and a few other factors.
Therefore, the result of this calculation should never be the sole deciding factor on when to start your benefits.
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Factors To Consider When Deciding When To Take Social Security
Retirees deciding when to start their Social Security benefits should consider many factors, and it is generally a good idea to get help from a financial planner. While a break-even calculator can be one piece of information you consider, several other pieces of information should also be considered. It would be best to consider different things when deciding when to start your Social Security benefits.
Life Expectancy
Your life expectancy should be prominent in deciding when to start your benefits. Suppose you perform a break-even analysis, and the results show that you need to live to at least 85 years old to break even with your benefit payments. If your life expectancy is only 70 years, you probably want to go ahead and start your benefits as early as possible.
Likewise, it would help to consider your general health when making this decision. If you are in bad health or have a life-threatening disease, that can be a huge deciding factor when thinking about your Social Security benefits. Based on your work record, you might also consider any survivor benefits your surviving spouse or dependents may receive.
Spousal Benefits
Married couples must consider both the primary beneficiary’s benefits and their spouse’s benefit amount, especially if they are relying on spousal benefits. Break-even calculators do not consider spousal or survivor benefits when performing their calculations. You already know that your filing age will affect your benefit amount, but remember that it will also affect any survivor benefits that your surviving spouse might receive. If you start your benefits early, that decision could have a much longer effect than you initially thought when survivor benefits come into play. A financial advisor can help you perform thorough financial planning to consider all these factors when deciding when to start your benefits.
Earned Income
Break-even calculators also do not consider any earned income you might still receive from working as an employee or from self-employment. Remember that there is a trade-off to continuing to work after you start your Social Security benefits.
If you have not yet reached full retirement age, your benefits will be reduced if you make more than the Social Security earnings limit. The reduction could be pretty significant, depending on your income. This could have a considerable effect on your break-even calculation, so make sure that you consider whether or not you will still be working after you start your benefits. The earnings limit disappears once you reach full retirement age, so working is no longer an issue.
Personal Retirement Accounts
Make sure that you consider any personal retirement accounts you might have, such as an IRA, 401k, or annuity. Income from these accounts could help you delay the start of your Social Security benefits to get closer to the maximum benefit amount. If you have no income from personal retirement accounts, you might be forced to start your benefits earlier.
Thankfully, income from these accounts does not affect your monthly benefit payments because this income is not considered earned income. You can receive an unlimited amount of income from these types of sources with no effect on your Social Security benefit.
Cost-Of-Living Adjustments
Remember that Social Security gives you an annual cost-of-living increase to account for inflation. By examining the consumer price index data, the Social Security Administration increases benefit payments to keep pace with inflation. During years when the price index shows a decrease in the price of goods, your Social Security benefits will not change.
Some break-even calculators take the Social Security COLA into account when determining your break-even age, but they use an estimate of future COLA increases. More significant cost-of-living adjustments can shorten the time it takes to break even with your benefits because the higher your benefit amount, the more considerable the dollar amount of your benefit increase will be.
Social Security Break-Even Calculation Examples
Let’s look at some examples to understand the break-even calculation better. Remember that these examples are for illustration purposes only, and your calculation will likely look different.
Example 1
Consider an example where your primary insurance amount is $2,000 per month, and your full retirement age is 66. You could start receiving your benefits at age 62 and receive $1,400 per month, or wait until you are 70 and receive $2,600 per month. Here is what your cumulative benefits would look like ten years after you first became eligible for benefits.
- $1,400 per month starting at age 62 – $168,000
- $2,000 per month starting at age 66 – $96,000
- $2,600 per month starting at age 70 – $62,400
You can see that at age 72, your cumulative benefits would be much higher if you started your benefits at age 62. But remember that the higher benefit amount will eventually cause your cumulative total at the older retirement age to surpass this amount.
Example 2
Here is what your benefits would look like after 20 years of Social Security eligibility.
- $1,400 per month starting at age 62 – $336,000
- $2,000 per month starting at age 66 – $336,000
- $2,600 per month starting at age 70 – $374,400
In this example, you can see that at age 82, it makes no difference whether you started your benefits at age 62 or 66. Your cumulative benefit amount would be the same. However, if you had waited until age 70 to start your benefits, you would have already received a higher cumulative total. So, if you expect to live into your 80s, it’s likely a good idea to wait to start your benefits in this example. Remember that your break-even age will differ depending on how much Social Security pays you monthly.
TIP
A Social Security break-even calculator is a simple tool that guides you on the best time to begin Social Security benefits. However, it should not be the only factor in your decision-making process.
Tips To Remember When Using A Break-Even Calculator
Estimate Only
There are some critical disclosures to remember when using a break-even calculator. First, you should remember that these calculations are only estimates. Use the Social Security benefits calculator to get a pretty accurate estimate of your benefit amount at different retirement ages. You can then use those amounts in the break-even calculator, but even though they should be close, those numbers might not be 100% accurate.
Missing Variables
Remember that these calculators do not consider all the information about your situation. Other things to consider when deciding when to start your retirement benefits include your life expectancy, general health, spousal benefits, and survivor benefit options. You might also need to consider your Medicare premiums if an employer-sponsored health plan no longer covers you.
Seek Expert Advice
Lastly, remember that you can always ask for help if needed. Deciding when to start your Social Security benefits can be complex, and experts can help you. Instead of relying on a break-even calculator, you can seek the help of a licensed financial planner. These experts can assess your overall financial situation and help you determine the best time to start your benefits. They can discuss different options and help you understand the pros and cons of varying benefit start times.
The Bottom Line
A break-even calculator can help you decide when to start your Social Security benefits. These calculators will tell you when your cumulative Social Security benefits would break even based on different retirement ages.
You could start your benefits early and get lower payments or wait until later to start your benefits and get larger payments. These calculators can help you decide which option is suitable for your situation by showing you how long it will take for the cumulative amount of the larger payments to catch up with the smaller payments.
Remember that these calculators do not consider vital information like your life expectancy, health status, and potential spousal or survivor benefits. You must make sure that you consider all these factors before making the final decision on when to start Social Security. You might not make the best choice if you only use the break-even calculation.
Frequently Asked Questions
A few different factors must be considered when deciding whether it is worth waiting until age 70 to take Social Security. The amount of your benefits is one factor, but your health and life expectancy are two of the most important.
In most cases, you would need to live into your 80s to make it worth waiting until 70 to start Social Security. If your life expectancy is shorter than average, you should probably not wait until 70. Starting your benefits early would likely make better financial sense, leading to a higher cumulative benefit amount.
Social Security does not require any savings. Think about how Social Security works. Qualifying for Social Security requires you to pay Social Security taxes, which are mandatory. The taxes will be automatically withheld from your paycheck if you are an employee. You will pay these taxes when you file your tax returns if you are self-employed.
The more you pay Social Security taxes, the more Social Security benefits you will receive. However, a maximum Social Security benefit amount and a Social Security tax limit exist. Once you reach the tax limit each year, no more Social Security taxes are due.
You will qualify for the maximum Social Security amount if you reach the limit each year for 35 years and wait until 70 to start receiving benefits. However, the average Social Security payment is much less than the maximum.
The easiest way to determine your break-even point for Social Security is using our break-even calculator. Enter the required data, and the calculator will calculate for you. However, you can also perform the calculation manually. To do so, you will calculate your cumulative Social Security benefits each year based on at least two different retirement ages. The year in which your cumulative benefits are equal represents your break-even point. Even though this calculation isn’t too hard, using our calculator is much faster and easier than doing it alone.
Break-even means the point at which your cumulative benefits based on two different retirement ages would be the same. For instance, if you start receiving your benefits at age 62, your payment will be lower. Waiting until age 67 will result in a higher payment, but your break-even age might be 76. That means you’d have to be 76 years old before the total amount you’d get from the higher benefit would be more than the total amount you’d get from the lower benefit. The break-even point is one factor when deciding when to start your Social Security benefits.
The 85% rule typically applies to the taxability of your Social Security benefits. No more than 85% of your benefits will be taxable, regardless of your income. So, you will receive 15% of your Social Security benefits tax-free, no matter how high your total income is.
Depending on your income, you could see none of your benefits taxed. Similarly, you might see 50% of your benefits taxed. The taxability of your benefits depends on your total annual income.
You can find a Social Security Administration office near you by using our SSA office locator and searching for your closest location.
