Thursday, March 31, 2011

The Best Time to Start Social Security

     I'm of an age where I am just becoming eligible to take Social Security. Hence, when to start my Social Security retirement benefit is a subject near and dear to my heart. There are roughly 15 million Baby Boomers in the 62-66 age bracket who currently face the same question. Another 60 million Baby Boomers are following close on our heels, wondering -- should I wait, or should I get it while I can?

     I did a post on the subject, Should You Take Social Security Early? back in December. Basically, for those of us born between 1943 and 1954, our full retirement age is 66. We are eligible to start payments as early as age 62. But there's a penalty. If you start at age 62, your monthly payments will be about 25 percent lower than if you wait until 66. Conversely, if you can delay Social Security until you're 70, you'll enjoy payments 25 percent higher than what you would have gotten if you started at age 66 -- and 75 percent higher than what you would have received at age 62!

     As an example, if you have a consistent work record and made a decent salary, at age 62 you might expect to receive a Social Security benefit of $1500 a month. If you do nothing else except wait until age 70, you'll collect over $2600 a month. You get fewer checks -- because you're not being paid for those eight years -- but it would seem that if you can make it to age 70, you'd be better off in your final years.

     But results, as they say, vary. So every year the government sends an update to you called "Your Social Security Statement," which details your own prospective benefit under various circumstances.

     It seems simple, doesn't it?  But life is complicated. Not all companies keep employees around until they're 66, so a lot of people in their late 50s and early 60s lose their jobs. (Age discrimination? I'm shocked! Shocked!) They might need the money now, and don't have the luxury of devising a strategy to maximize benefits over their lifetime. Also, not everyone works for money. If you rely on a spouse for benefits, things can get complicated, especially if you're divorced.

     Then, remember, Social Security is a government program, so it is ridiculously complicated. Your benefit depends on how long you have worked, how much money you earned, whether you're single, married or divorced, and it seems a hundred other variables. Plus, if as a beneficiary you make over a certain amount of money, your payment will be taxed -- are you surprised that the government gives with one hand, but takes with another?

     The bottom line is:  figuring out how to maximize your payments is virtually impossible. However, you can make some educated guesses. There's an article on yahoo! finance, by Linda Stern of Reuters, that tries to help you puzzle out what's best for you. She consults a couple of experts who analyze the situation. And, of course, they disagree. One argues it's better to start benefits early. The other says you're better off to delay.

     But there are a few rules of thumb:

     Take Social Security early if:

     1) Your income is low and you really need the money now.

     2)  You have a spouse who will be eligible for a larger benefit later on.

     3) You have good reason to believe you will not live into your 80s -- either because you're suffering from a life-shortening disease, or you figure your genes are just not going to get you that far. (I've seen a corollary point of view suggesting that men take Social Security early, and women wait, simply because women tend to live longer than men.)
     Delay if:

     1)  You're still working.

     2)  You're healthy, and have a family history of extended longevity.

     3)  You have a large nest egg ... at least $500,000.

     But wait! What if the government changes the rules? A lot of people worry that Congress will soon slash Social Security to help shore up the federal deficit. "Don't let 'the Social Security program going to disappear soon so I should take my benefits ASAP' argument sway you," says Linda Stern. "Even the most hawkish anti-entitlement politicos aren't talking about taking benefits off the table for anyone within 10 years of retirement."

     If the answer is still not clear for you -- as it won't be for most of us -- then take a look at this free retirement planner that will help you figure out your own situation. (Scroll down and click on "Link to Should You Start Social Security Early.") You can plug in your own numbers, and the calculator will give you some details.

     If it helps alleviate anyone's worries, I ran the numbers for myself and found that all my anxieties are for naught. In the long run, at least for me, it doesn't really matter much when I start taking Social Security. No matter what I do, I will have enough money to keep food on the table, and a roof over my head. But it doesn't look as though I'll be planning any grand tours to Europe in this lifetime.


Linda Myers said...

If I collect at 62 I'll get 250 a month. If I wait until I'm 65 I'll get 340 a month. I worked for my last 20 years for a state agency that didn't collect social security. It's getting me now!

rosaria said...

Social Security is based on years worked, amount made,age you retire. It is offset if you have another pension. So, it is hard to really know until you go in and start the paperwork.

Dick Klade said...

Yes, Linda, that also happened to older federal retirees. Now, the Governor of Michigan where we live says he will tax retiree pensions, but make it fair by exempting social security benefits. This is totally unfair to people in our situations.

nacodoches said...

I went through all these calculations a few years back, then had a stroke and had to take SS early. Thank goodness it was there. My sister also had health issues and had to begin payments early (she is in your age bracket). It pays to do the calculations and wait if you can. On the other hand, sometimes you can't and that's ok too. Dianne (AKA schmidleysscribblins before I upgraded my computer software)

Nance said...

I'm one of those who can't expect to live much past eighty, so that pivot age of 78.5 (or whatever it is--I think this is close) butts right up against my life-expectancy. I retired in fine shape at the end of '07, thinking I'd not need SS until my seventies. Wall Street had other ideas.

My nest egg shrunk, I want to will what's left of the principal to my kids, so I'm taking no income from it in this scary investment environment. Turns out, I opted for SS at 62. Still no trip to Europe for me, either.

Robert the Skeptic said...

How timely I found this blog, we have our intake interview with SS a week from Monday. (We are leaning toward my taking my benefit early at age 62 with the spousal benefit. Then when my wife is older, stopping my spousal benefit and she applying for her own) Not sure if we can do this.

fred doe said...

it's like cutting the pizza in six slices or eight slices. your going to live to about 78. (everyone wants to go to heaven but no wants to die.) if you collect at 62 by the time your 78 you will have collected more money than if you wait till 70. it's like knowing when to cash out at the gambling table:)

Anonymous said...

Social security seems pretty easy and straight forward to me. Its one of the best run government programs out there. I saw a figure that said administrative costs are only 1% of the budget. That's awesome for the taxpayers. I'm a bit bias because I work there...and I happen to love my job.

I think there is a link at that allows you to log in and get estimates based on your actual earnings record.

Anonymous said...

My personal dealings with Social Security were positive and the person that saw me was very helpful. I did my homework and their website is very informative. If you complain about it, chances are you didn't look into it enough.

Anonymous said...

This isn't rocket science. If you are still working at 62 & still want to, great wait til later. If you don't feel like working, or need the cash, take it. All the stuff you see online about retirement strategies are for folks with a lot more money, and a lot more fear of losing it.

Anonymous said...

In dont have a comment, but a question really. In your yahoo article about retirement, you said that if you recieve over $ 14000/yr from SSI, that they can delay your payments...please explain. My husband wants to early retire at 62 and his benefits are supposed to be $1615/mo

Tom Sightings said...

Hi, Are you referring to my US News article 6 Ways to Get the Most out of Social Security? Regardless, I think the issue is this: If you are still earning any money by working, and start taking SS benefits before you reach full retirement age, then the government will start subtracting your SS benefit if you earn more than $14,160 during the year. But don't rely on my advice. You can ask Social Security directly by stopping by one of their offices or calling them on the phone. Anyway, thanks for checking out my blog -- you can also follow me on facebook -- and best of luck to you.

jason haris said...

Hi Tom,
I loved reading this piece! Well written! :)

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Kirk said...

I retired at 56. When I was 62 I had almost decided to defer, but then dod some calcs and took the payments at 62. I have other retirement income, but the SS income allows me to reduce the amount of capital gains taxes I'd incur by selling investments for living expenses.

With 2 teenagers (one in college), SS payments cover about 35% of our total outgo.

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