We all know that the longer you wait to start collecting Social Security the higher your benefit will be because for every month you delay collecting, you earn a higher benefit, right?
A better and more accurate way to look at it is that there is an early retirement penalty for each month before age 70 you start to collect. That’s the way a pension plan would work.
Typically the normal retirement age under a pension plan is 65, but under certain conditions like achieving a level of service, early retirement is available with or without a reduction in benefits, sometimes an actuarial reduction and sometimes subsidized by the plan.
So, for a person who has a full Social Security retirement age of 66, 100% of the accrued benefit is at age 70 and at age 66 the early retirement reduction is 32% of the full benefit.
Viewed this way, more people may be inclined to work longer to lower the early retirement penalty. Yeah, I know it’s just the way you look at it, but isn’t that important in many decisions we make.
One way you don’t want to look at collecting is with a goal of maximizing the lifetime benefit you receive.
What really matters is maximizing your monthly income, when you need it most.