Lynn O'Shaughnessy

When should you begin taking Social Security payments?

The process that many people use to answer this question is more reflexive than contemplative. A lot of folks have already predetermined what their magic number is. At age 62, they can start collecting Social Security and they want what they've earned - NOW!

If you've saved little and are unable to work any longer, there's little need for an angst-filled examination of various scenarios. If you can't survive without early Social Security checks, you can keep the calculator in the drawer and take the reduced early-bird benefits.

For everybody else, however, there's a financial advantage to poking sticks at the actuarial beast created by the Social Security Administration. But you can't begin to formulate an intelligent attack plan until you understand what your options are.

Here's a glimpse of what's at stake: If you paid the maximum in Social Security taxes for most working years and you retired at your full retirement age in 2006, you'd be entitled to receive $24,685. The government arrives at your benefit by looking at your 35 highest earnings years in a span that reaches back to age 22. If you started the payments at 62, however, the yearly benefit would shrink to $18,437. If you held off until your 70th birthday, you'd pocket $34,184 that first year.

People often assume that they'll come out ahead if they grab their benefits at the first opportunity, but that's often wrong. For the eager beavers, the benefit will shrink depending upon when they were born and how early they grab the cash. If you were born in 1937 or earlier, the reduction in your benefit is 6.7 percent a year, up to 20 percent, if you start the checks three years early. The federal government's actuaries aren't slouches. They've calculated payments so Americans with the typical life span will collect the same amount of money regardless of when they start cashing their checks. Typically, the break-even age is 78. If you live longer than that, it would've been better to delay your Social Security.

Here's an example: Suppose you were grappling with receiving a yearly $15,000 benefit at age 62 or waiting until full retirement age for a $20,000 benefit. Regardless of which choice you made, when you are 77 years old, you would've pocketed the exact same amount of money. But if you made it to your 78th birthday, you'd be financially rewarded if you had the patience to wait those few extra years. Meanwhile, if you'd postponed receiving any benefits until 70, your benefits, by the time you reached 80, would exceed all the Social Security cash you'd have pocketed if you started collecting checks at age 62.


Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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