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Social Security, Longevity Insurance

Are you better off with early-but-lower payments or later-but-higher payments?

En español | Worried about the future of your Social Security benefits? Relax. If you're retired or close to it, little or nothing will change. There might be adjustments for people under 55, but passing new legislation will take a while.

I'd bet that every current AARP member, including those who have just reached 50, will enjoy about the same Social Security system we see today.

Benefits for the next generation might slim down a bit, but that's not the end of the world. Congress trimmed benefits for the boomer generation in 1983, when the full retirement age was raised, in several steps, to 67 from 65. The boomers didn't kick.

So how do you tease the most benefits out of Social Security? I'll do a quick pass at the rules and then suggest some ideas.

The earlier you claim Social Security, the lower your monthly check. For example, if you were born between 1943 and 1954 and you sign up for benefits at 62, you'll get 25 percent less than if you waited until 66, which is your full retirement age.

Your benefit rises by about 8 percent for each year of delay, until age 70 when it tops out. At that point, your checks will be at least 76 percent higher than if you had retired at 62. While waiting, you also accrue annual inflation adjustments, if the consumer price index goes up, so your actual gain could be higher than 8 percent a year.

If you were born after 1954, the full retirement age rises rapidly to 67. Retiring at 62 will slice 30 percent from your full retirement benefit.

Whether you'll live long enough to make a delay in benefits worth it is something you don't know. Are you better off with early-but-lower payments or later-but-higher payments?

In general, taking benefits early works for people who get high returns from their investments, says Michael Kitces, director of research for the Pinnacle Advisory Group. They can spend their Social Security checks while leaving their savings alone to grow.

On the other hand, taking benefits later will be the right choice if inflation jumps in future years. Your cost-of-living increases will be figured on top of the higher benefits you earn by delaying the start of your checks. That's much more than you can expect from stocks and bonds. A delay also benefits those who live beyond their normal life expectancy.

Some people have no choice. They have to sign up as soon as they reach 62 because there's no other money.

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