Boomer Authority™

Social Security - When and Why Should I Start

As you get closer to retirement, it is important to realize that there are decisions you have to make regarding certain benefits that will become available to you. One decision that affects all but a few groups is when to begin your Social Security benefit.

Three milestones require consideration when choosing your benefit, age 62, full retirement age (between 65 and 67) and age 70. At each of these ages your benefit amount changes and it is important to understand which age and amount is most advantageous to your needs and situation.

Age 62, the age where Social Security first becomes available, offers you a benefit amount approximately 75% of the amount you would receive at full retirement age. The common thought for many people is to begin benefits at this time, the idea being, "the longer I take the benefit the more lifetime benefit I will receive". Starting benefits at age 62 made more sense when life expectancies were shorter; the "break-even" age for taking benefits at 62 versus your full retirement age is between 78 and 80 years old.

Another factor in your decision is whether you will continue to work between age 62 and your full retirement age. Earnings from employment may reduce your benefits if they exceed certain amounts. In 2008 if you have not reached full retirement age and earned over $13,560.00 your benefit reduction is $1 for every $2 earned. If you will reach full retirement age during 2008, your earning limit is $36,120.00 and benefits are reduced $1 for every $3 earned. The month you reach full retirement age you can relax, from that point on you are able to earn as much as you want with no reduction in benefit. One important note is that these limits are on income earned from employment, not pensions, annuities, IRA's, or 401k withdrawals.

A third consideration is delaying you benefit. Social Security provides delayed retirement credits up to 8% per year to age 70 for those who can wait to take their benefit.

These options will determine the benefit you receive during your lifetime. An often, overlooked part of the decision process is what affect will my choice have on my surviving spouse? Your surviving spouse at full retirement age will receive a benefit equal to yours if it is higher than his or her own. If you chose to delay your benefit beyond your full retirement age, your surviving spouse will receive your benefit plus the additional delayed retirement credits.

It is important to realize that decisions like these should not be automatic or determined by the "if it works for him it should work for me" process. You need to determine the pros and cons of each option and understand how it satisfies your needs in your unique situation.

2009© Mike Bonacorsi CFP® All Rights Reserved

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