Factors to consider in determining when to receive Social Security benefits

Over the course of your working lifetime, with every paycheck you’ve dutifully paid taxes toward Social Security. When the time comes to retire, will you file for your benefits as soon as possible — age 62 under current guidelines — or will you wait until your full retirement age to receive benefits? You also have the option to wait longer than your full retirement age to receive an even bigger check. The question is when does it make sense to start taking benefits?

For years, the full retirement age was 65, and there was no debate about the merits of waiting to take your Social Security. In anticipation of the millions of baby boomers entering retirement, the government has pushed the age of full retirement out. Americans born in 1960 or later don’t qualify for full benefits until age 67 — and the full retirement age might continue to creep upward as a means to stave off the impending shortage in the federal government’s coffers.

In general, the longer you wait to file for benefits, the bigger your monthly Social Security check will be. Conversely, if you take money out sooner, you’ll get less. How much less? Well, if your full retirement age is 66 and you decide to take benefits beginning at age 62 (“early” retirement), your benefits will be reduced by 25 percent.

Still, if you choose to wait until full retirement age or beyond to receive benefits, you may need to consider how long it will take you to catch up to the amount you would have received, cumulatively, had you started taking benefits at a younger age. This is called the “breakeven point.”  If you delay your benefits (up to age 70), you may not reach your breakeven point until your 79th birthday. That may be fine if you live to be 90 but is not so swell if you don’t reach age 75. Assuming you are in good health and have a healthy family history, you could increase your lifetime total benefit in your retirement years by waiting until age 70 to begin receiving your Social Security benefits.

There are other factors beyond the breakeven point that will influence what age is optimal for you to begin receiving your Social Security payout. If you need the money now because you don’t have sufficient savings or other sources of income to live on, you may have no real choice. Or if you are in poor health, it also may not make sense to wait to receive your benefits.

If you’re nearing retirement age and your income has peaked or remained relatively steady, you could increase your future monthly Social Security payment by continuing to work beyond age 62 without claiming benefits. That’s because the amount of your benefit is based on your highest 35 years of income (adjusted for inflation). If you can bump up your income, the overall calculation of your average income will result in a plumper check. On the other hand, if you continue to work between age 62 and your full retirement age and file for Social Security, the benefits you receive may be taxed and thus reduced.

Your marital status factors into the decision of what age you choose to receive your benefits. For married couples, there’s a potential advantage for the lower-earning spouse if the higher wage earner postpones benefits. That’s because the lower wage earner receives one-half of the spouse’s benefit provided he or she has reached full retirement age and the full benefit if he or she is widowed. According to ssa.gov, if the lower-earning spouse begins collecting benefits prior to reaching full retirement age, he or she could receive benefits of up to about 46 percent, depending on his or her age.

To be sure, you’ll want to look at your projected benefits (and your spouse’s) and speak with your financial advisor before making a decision to request your benefits. Review your Social Security statement (you can request one at ssa.gov) to determine the benefits you would receive if you were to begin collecting at age 62, at your full retirement age or if you decide to postpone your benefits until a later age. Talk to your financial advisor and your accountant to get professional opinions on the value of waiting versus claiming benefits sooner. What makes sense for one retiree may not be the best choice for another.

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Steven J. Gehrke, CFP®, MBA  

Financial Advisor, CERTIFIED FINANCIAL PLANNER® practitioner

Ameriprise Financial, Inc.

19950 Dodd Blvd.  Ste 102-202

Lakeville, MN 55044

(651)221-0711

ameripriseadvisors.com/steven.j.gehrke/

This communication is published in the United States for residents of Minnesota only; and this advisor is licensed only in the state(s) of MN.