Timing is Everything When Collecting Social Security

Looking forward to retiring early the day you reach 62? Think again. You may want to wait a little longer to get full retirement benefits from Social Security.

Recent changes to the Social Security laws are gradually moving back the age at which you can collect full benefits. (See chart, page 2.) However, most people still can begin to collect partial benefits at age 62. Should you sign up early, even though your monthly check will be smaller?

That depends, experts say. If you live a long time in retirement, it will pay off to delay taking benefits for as long as possible. That’s because, over many years, the larger checks for full benefits taken later will add up to more than the smaller checks for partial benefits taken early.

But since we don’t know how long we are going to live in retirement, it may be wise to consider some other factors.

The pros

The most obvious reason to begin collecting your Social Security benefits early is if you need the money for living expenses. Your benefit, even if it is reduced, may allow you to pay your bills, or it may let you cut back on work, or retire earlier than you could if you waited for a full benefit.

If you don’t need the money immediately, you can invest your partial benefit to bolster your retirement savings or to provide you with emergency cash. Or, since the money you receive from Social Security is money you may not have to withdraw from your employer’s retirement savings plan, those funds can continue to grow on a tax-deferred basis.

The cons

Perhaps the biggest drawback to taking your Social Security benefit early is that you will get less each month than you would if you waited – although over the average lifetime, the total should be the same. For example, someone born in 1937 or earlier who has a full retirement age of 65, receives 80% of the full retirement benefit if he or she retires at age 62. But someone born in 1960 or later whose full retirement age is 67, receives only 70% of the full benefit if he or she starts drawing at age 62. (The benefit is reduced to a lesser extent if someone retires between age 62 and full retirement age.)

If you take early retirement benefits from Social Security while you are still working, you could find your check reduced even further. That’s because workers under 65 must forfeit $1 in benefits for every $2 they earn in excess of $10,680 this year. If you turn 65 this year, your benefits will be reduced by $1 for every $3 you earn over $25,000, in the months before your 65th birthday. Legislation enacted in 2000 removed the income limits for workers age 65 or over.

In addition, consider the tax implications. Will the additional income put you into a higher tax bracket? And remember that if you retire before you become eligible for Medicare, you may have to pay for your own health insurance -- and that can be expensive.

The bottom line

The decision about when to take your Social Security benefits should be part of a carefully planned approach to retirement that includes your employer’s retirement savings plan and other retirement investments, in addition to Social Security benefits.

The Social Security Administration sends most workers an annual statement showing their earned income and projected benefits. You also can request a personal benefits statement online at www.ssa.gov.

Age to Receive Full Social Security Benefits

Source: Social Security Administration

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