Retirees must make an important decision about their Social Security benefit payments: whether to receive a small amount sooner or to wait a few years and collect larger benefits later. Its not a decision to take lightly. The choice can mean thousands of dollars in retirement income. There are several factors to consider, and no single right answer for everyone.
Since its inception in 1935, the Social Security system, which provides economic assistance to older and disabled Americans, has been expanded and tweaked. The traditional full retirement age that once was 65 now begins at 65 years and two months for people born in 1938 and goes up incrementally to age 67 for those born in 1960 or later.
One thing, however, hasnt changed: You can begin collecting Social Security at age 62. By doing so, however, your monthly benefit will be less than if you wait until full retirement age or delay retirement until age 70, when you can receive an even higher monthly benefit.
The Social Security Administration (SSA) estimates that, depending on your age, early benefits range from about 6.7 percent to 30 percent lower than those youll receive if you wait until full retirement age; those smaller benefit checks remain at the lower level for the rest of your life.
That trade-off is fine with Ann Cornelius, 65, of Royse City, Texas (pop. 2,957), who opted to receive benefits as soon as possible. I realized I would be better off taking Social Security at 62 and changing my lifestyle than waiting until age 70, she says.
But such a shortfall could be troublesome if youre not willing to reduce your standard of living or dont have other retirement income sources, such as personal savings or a private pension.
Benefits are based on your average earnings during a lifetime of work under the Social Security system. For most retirees, the SSA averages your 35 highest years of earnings. Years in which you had low or no earnings may be counted to bring the total years of earnings up to 35.
Making a choice
Every year, the SSA sends individuals who have paid into the system a benefits analysis detailing each persons estimated benefits at early retirement, full retirement and age 70. This document is a key component in deciding when to collect your government benefits, says Kia Green, an SSA spokeswoman.
There are three things to consider: your personal savings, whether you intend to continue working after you reach your benefits eligibility age, and your family health history, Green says.
The goal is to get the most out of Social Security, and that usually means waiting until age 70 to receive benefits, says Sheryl Garrett, founder of Garrett Planning Network, based in Shawnee Mission, Kan. The bottom line is if you think youre going to live a long time, youre much better off to wait and take the benefits, even as late as age 70, if you can, she says.
Garretts concerns seem well-founded. Data from the Centers for Disease Controls National Center for Health Statistics show that U.S. life expectancy is now at a record high: an average of nearly 78 years. Women now live to be 80.4 years old, compared with about 75 years for men.
The longevity argument, however, didnt dissuade Cornelius from taking her benefits early. Although several women in her family neared or passed the 100-year mark, Cornelius decided that, for her, a smaller dollar amount, but for a longer period of time, was more advantageous.
Cornelius, who became Royse Citys first museum curator at age 64, says her choice works out beautifully, especially since her part-time income is low enough to keep her Social Security benefits from being taxed.
Work had the opposite effect on Pamela Baggett, 64, a public relations counselor in Austin, Texas, who postponed receiving her benefits until age 66. I had hoped it would be a nice bump in my part-time income, but I discovered I would lose $1 [in benefits] for every $2 I earned over about $13,600, Baggett says. I cant afford to quit working to take Social Security.
Ruth E. Thaler-Carter, 57, a freelance writer and editor in Rochester, N.Y., has a few years before she must decide when to begin drawing her benefits. But shes been part of the earlier-versus-later decision already, thanks to her husband, Wayne Carter, 69. A former steelworker, he retired at age 58 and opted to receive his Social Security early, too.
For us, it turned out to be a good move and provided that much more security, Thaler-Carter says.
For help deciding when to begin Social Security withdrawals, talk with a financial planner or visit the Social Security Administrations website, www.ssa.gov, which has online tools to help you calculate and apply for your benefits. You also can call the SSA toll-free at (800) 772-1213, or (800) 325-0778 if you are deaf or hearing-impaired, and speak to a Social Security representative.
If you choose early retirement . . .
Choosing early retirement will give you about the same total benefits as full retirement over your lifetime, but in smaller amounts to take into account the longer period you will receive them, according to the Social Security Administration.
If your full retirement age is 67, and you choose to take early retirement, the reduction for starting your benefits early is:
- at age 62: about 30%
- at age 63: about 25%
- at age 64: about 20%
- at age 65: about 13.3%
- at age 66: about 6.7%
Age to receive full Social Security benefits
YEAR OF BIRTH RETIREMENT AGE
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67