When Should You Begin Taking Social Security Benefits?

The oldest Baby Boomer on record, Kathleen Casey-Kirschling, turned 62 at the stroke of midnight on January 1, 2008, and promptly applied for Social Security. Nearly 80 million people will follow her lead over the next 20 years. But while you can file for Social Security at age 62, does that mean you should?

The timetable for receiving full Social Security benefits has changed to accommodate changing times and funding. When you were born dictates when you’re able to receive full benefits.

Those born in 1937 or earlier reach full retirement age at 65. From 1938 and on, the age rises gradually to 67. When you begin taking the benefits affects the percentage of benefits you’ll receive. For example, if you begin collecting Social Security at your earliest opportunity (age 62), you’ll receive permanently reduced benefits. Conversely, waiting until full retirement age will allow you to collect 100 percent of your benefits. You’ll earn even more by delaying payments past your full retirement age. Here are some examples of how timing affects your benefits.

If your full retirement is at age 67, your Social Security benefit will be reduced by about:

• 30 percent if collected at 62
• 25 percent if collected at 63
• 20 percent if collected at 64
• 13 percent if collected at 65
• 6 percent if collected at 66

However, if your full retirement age is 66, and you delay taking benefits until age 67, you’ll receive 108 percent of your benefits. If you wait until age 70, it shoots up to 132 percent.

So when should you begin taking your hard-earned benefits? That depends on your situation, including life expectancy and financial picture.

Medicare is one consideration. Americans become eligible for federal health insurance coverage at age 65. If you retire at 62, you could lose health insurance. Paying for your own could cut into retirement savings.

Will you work during retirement? If you’re less than full retirement age, earning too much can take money out of your pocket for the short term. For 2009, you can earn $14,160 without penalty. But earn more than that, and you’ll lose 50 cents for every benefit dollar. There are no penalties for working after you reach full retirement age.

Be sure to consider investments. If you take your Social Security benefits earlier rather than later, your savings would be invested longer. The higher your rate of return, the better off you’d be taking benefits early and letting your savings grow.

Figuring your “break-even” age can be a determining factor as to when to start drawing Social Security. Your break-even age is when the total value of your higher benefits (as a result of postponing retirement) begins to exceed the total value of your lower benefits (from choosing early retirement).

For those who choose to wait for benefits until age 66, it would take about 12 additional years to collect as much as if you had started collecting checks at age 62. In this example, your break-even age would be 78. If you’re in good health and expect to live past age 78, it would be better financially for you to delay retirement.

For other useful Social Security benefit information, and to estimate your retirement benefits, visit www.ssa.gov/estimator.

There's no one right answer when it comes to deciding when to begin taking Social security benefits. You should figure in your own financial need, health and plans for life after retirement before making the decision that’s right for you. If you need help with your retirement planning, Vantage can help.