A big question that nearly every retiree faces is when to start collecting Social Security payments.

At first, this may seem like a simple problem. If you take the payments sooner, they are smaller, but you will get more checks and you’ll start getting your money sooner. If you start later, you have to wait, but you’ll get bigger checks. What’s a person to do? This is a very important topic for retirees and those nearing retirement. Here are a few facts I found interesting:

Many people could benefit from giving more thought to the question of when to start taking Social Security benefits. Once you start taking benefits, you have made an irrevocable decision that you can’t take back -- unless you are willing to return all your benefits to the government and make a fresh start later. The results of your election will be with you for the rest of your lifetime, and your decision may also affect your spouse, if you have one, after your death.

Social Security benefits are calculated starting with a base amount assuming you begin drawing them at the “normal” retirement age. Depending on when you were born, that “normal” age ranges from 65 to 67.

You may already know when your official “normal” retirement age is, but here’s a table that tells when you’re eligible for full benefits and how much your monthly check will be reduced if you start collecting at age 62. (Percentages are rounded.)

The table shows that if you were born in 1943 through 1954 and your full monthly benefit payable at age 66 were $2,000, you could start collecting 75 percent of that, or $1,500, at age 62. Younger people (those born after 1954) who start taking benefits at age 62 get less (in percentage terms) each month because there are more months between 62 and their “normal” retirement dates.

It’s possible to start collecting benefits any time after age 62; the amount is calculated based on the number of months before the normal retirement age. You can also delay the start of benefits up to age 70, thereby getting larger checks.The percentages are designed so that early retirees (age 62) and “normal” retirees (age 65 to 67) will have received roughly the same total amount by the time they reach age 77 (assuming they live that long). Those who wait until they’re 70 to receive benefits won’t “catch up” until they are over 80. How much you receive over a lifetime depends, therefore, on your starting date and how long you live. One is under your control, the other isn’t. This means that an important dimension of this puzzle is to predict your expected lifetime.

If you are in good health and your family has a history of living into the 80s and beyond, the odds are that you’ll collect more over your lifetime by waiting until normal retirement age or longer. On the other hand, if your health is poor, you may want to begin taking benefits as soon as you can. Another dimension of the puzzle depends on what you need. If your resources are scarce and you need Social Security to get by, you don’t really have the option to wait until you’re 70.

On the other hand, if you’re still working more than just part-time, you may do yourself more harm than good if you take benefits starting at age 62. Before you reach your full official retirement age, your benefits may be reduced by $1 for every $2 you earn over $10,680 per year. After you reach full retirement age (65 to 67), you won’t lose benefits no matter how much you earn.

A third dimension involves your spouse, if you have one. The size of your benefit may determine the benefit your surviving spouse receives. A spouse who outlives you may receive benefits based on yours. Therefore, if you have a spouse who is younger or who has not earned nearly as much as you have over his or her lifetime, any survivor benefits will be higher if you delay the start of taking benefits.The best way to get the facts in your case is from the individual statement and earnings record you should receive from Social Security every year. It will tell you a lot. Here’s a real-life example from the statement of one of our clients who is still working:

He will receive: $1,269 a month starting at age 62 or $1,724 a month starting at age 66 (full retirement age) or $2,317 a month starting at age 70. If he lives to be at least 77 years and three months old, he’ll collect more over his lifetime by starting at 66 instead of 62. If he delays his start date until he’s 70, he’ll have to live at least 81 years and eight months to collect more over his lifetime than if he had started at 66. Women’s life expectancies are somewhat longer than men’s. Here’s another real-life example from the Social Security statement of our client’s spouse, who is younger than he is. (Her “normal” retirement is 66 years and two months.)

 She will receive: $995 a month starting at age 62 or $1,338 a month starting at age 66 and two months or $1,748 a month starting at age 70. If she lives to be at least 78 years and two months old, she’ll collect more over her lifetime by starting at normal retirement age instead of at 62. If she delays her start date until she’s 70, she’ll have to live at least 82 years and seven months to collect more over her lifetime than if she had started at 66.

Some people don’t need Social Security income at the normal retirement age but believe they can do a better job of investing it than the government. Before you try that, consider taxes. Depending on your other income, as much as 85 percent of your Social Security benefits may be taxed. That could leave you with less money to invest than you might assume. (If you paid 35 percent taxes on 85 percent of your benefits, you’d be left with only 70.3 cents for every dollar of gross benefits you receive.)

Leaving the money “in the system” until you’re 70 lets it build up tax-free.  A further benefit of waiting involves survivor’s benefits. The odds are that our client will die before his wife, especially since she’s younger. Her Social Security benefits will almost certainly be less than his, but upon his death she could begin collecting whichever amount were higher, his or hers. Waiting until he’s 70 would give her a modest “raise” from the government for the rest of her life. There’s one more variable that must remain unknown: the future of Social Security itself. The system has been operating without a hitch for more than 60 years. Any Congress or presidential administration would face extreme political risks if its actions put Social Security in jeopardy. Nevertheless, politicians can’t change the fact that the U.S. population is aging and that as the years go by, there will be fewer and fewer working people to pay for each retiree.

Therefore, your own assessment of the future of this program may affect your decision. If you are very concerned that Social Security will dry up, taking benefits as soon as possible might be your choice. Even if you are supremely confident in the system, you should recognize that delaying benefits beyond your normal retirement age constitutes something of a risk.

If your choice of when to start taking Social Security isn’t obvious by the time you sort through these questions, you may want to consult an independent, fee-only financial planner to make sure you are making the best decision. Everybody’s situation is different, with multiple variables.

For more information on Social Security, it’s hard to beat Social Security Online, which you can find at www.ssa.gov.

 

 

 

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