When to Start Social Security Benefits
By: Source: AARP.org Date Posted: 2007-08-10 13:14:00-04:00
A common question asked by those approaching retirement is when to begin receiving Social Security benefits. The decision depends on two factors. The first is when you plan to stop earning income and the second involves your thoughts on life expectancy.
Retirees can start receiving benefits from Social Security as early as age 62. However, the amount will be reduced from the amount expected at your full retirement age. To the surprise of some, age 65 is no longer the age at which full benefits are received. Any one turning age 65 in 2007 (born in year 1942), will have to wait until they are 65 and 10 months to be eligible for full benefits. Anyone born in years 1943 through 1954 must be 66 years and those born in 1960 and later must be 67 years of age. However, regardless of when you reach your full retirement benefit age, you can still receive a reduced benefit as early as age 62.
No Earned Income Expected
If you are 62 years or older and no longer are a regular paycheck, you should consider applying for your Social Security. The amount you receive each month will be lower if you start getting Social Security before your full retirement age. The reduction is based on the number of months prior to your full retirement date that you start receiving benefits. For example, if you begin getting Social Security when you turn 62 in 2007 (born in 1945) your benefit would be reduced by 25% because you are starting benefits 48 months before your full retirement age of 66.
Continued Employment and Social Security
If you decide to continue employment at any time from age 62 up to your full retirement age, the decision to start your Social Security retirement benefit will depend on the amount you plan to earn. You can earn up to a specific dollar amount per year ($12,960 in 2007) before your Social Security benefits are reduced by $1 for every $2 earned over that amount. Once you have reached your full retirement age, you can have unlimited earned income and still collect full Social Security benefits.
Breakeven Point
Experts say that if you live about 11 to 12 years beyond age 62, you should get about the same total amount of money if you start receiving the lower amount early or if you wait until your full retirement age. Given this 11 to 12 year breakeven period, if you no longer have earned income over the stated limit, but you decide to wait until age 66, you need to expect to live to age 77 to make up for the four years (age 62 to 66) that you received no monthly benefit. Once you are over age 77, waiting to receive the larger amount will begin to benefit you. However, if you die prior to age 77, you would have been better off taking the lesser amount at age 62.
Annual Social Security Reports
Each year the Social Security Administration sends you a report showing your recorded earnings by year and the monthly benefit that you can expect if you retire at age 62, at your full retirement age, or at age 70. The approximate benefit amount assumes that you continue to work and earn at your current rate until the designated age. If you stop working at age 62, the amount shown for your full retirement age will not be the amount you would receive by waiting to start your benefits to that age if you quit working at age 62. To get a more precise estimate, you can use the calculator provided at the Social Security site and enter zeros for the years leading up to your full retirement age.
Summary
Once you retire, calculate your personal breakeven point for beginning to receive a reduced amount versus delaying your benefit until your full retirement age. The closer you are to your full retirement date when you stop working, the lower the number of years to breakeven. Unfortunately, none of us has a crystal ball to tell us how long we will be collecting Social Security, so your final decision may not be based purely on the numbers.
Elaine Bedel, CFP®, is a personal financial planner with over 25 years of providing financial planning and investment management for executives, professionals, and entrepreneurs. She is the President and Owner of Bedel Financial Consulting and has served as Chair of both the Financial Planning Standards Board and Certified Financial Planner Board of Standards.
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