Some things to think about
Many experts suggest it is more beneficial to wait as long as you can to start pulling Social Security retirement benefits. Is this always the case? Here are some things to consider.
How it works
You have a choice of when to begin taking Social Security retirement benefits. For every year you delay the start of receiving your benefits, your monthly benefit amount increases. The amount you receive maximizes when you reach age 70. Here are the basics of how it works:
|You may start receiving reduced retirement benefits when you reach your minimum retirement age (currently 62 years old).|
|Full benefits are received when you reach your “full” retirement age. This is currently around age 66.|
|Each year you delay, your monthly payment benefit goes up around 4-8%.|
|Your benefit maximizes when you reach age 70.|
What are people currently doing?
According to a recent study conducted by the Urban Institute, 27% of the eligible recipients started taking benefits in 2011. This is reported to be a 35-year low. Reasons given for this trend:
|Delaying payments is beneficial in a low interest rate environment.|
|The decision to wait hinges on your financial condition. The less you need the money, the more likely you are to delay receiving the benefit.|
|If you’re still working, the likelihood of benefit delay goes up.|
So what is your plan?
Here are some things to consider:
|If in good health…consider delay. You will need to live longer to make up for the lost benefits each year you delay receiving payments.|
|Consider your “health” opportunity cost. A dollar when you are 62 might be spent much differently than a dollar spent when you are in your 70s. If you are very active now, will you be as active when you are 70? Using this philosophy, some retirees choose to receive benefits earlier.|
|If you are working…delay. Remember Social Security retirement benefits can be taxable. This typically happens if you have incremental income in addition to your Social Security benefits.|
|If do not need the money consider delay. Assuming you live a long life, the increased benefit amounts are currently set at a rate high above the returns received through traditional savings accounts and CDs. But you should know what your living expense needs are and understand whether you will need the additional income that Social Security can provide.|
|If taking Social Security early allows you to keep from touching your IRA’s and 401ks then maybe take it now. Remember, money pulled from traditional IRAs and 401(k)s is subject to ordinary income tax. In addition, this retirement money is no longer able to compound as an investment.|
|Do the math. Some say the breakeven for delay can be as long as 10 to 12 years (depending on your benefit amount). So it makes sense to use the numerous financial calculators available to determine your personal benefit for each year you delay receiving benefits.|
Remember, delaying Social Security benefits is always a bit of a gamble. If you live a long life, you will receive payback on the benefit delay. If you die prior to receiving benefits, you will receive nothing for all the funds you placed into Social Security.