Published November 15, 2012

Decision time: When to begin taking Social Security benefits requires planning

As medical technology continues to improve and life spans grow longer, there is an increasing risk that you could outlive your retirement savings. In fact, one of four 65-year-olds today will reach age 90, and 10% will live to be older than 95, according to the Social Security Administration ( SSA ).

You need to be financially prepared for the possibility of a lengthy retirement, and one important decision you will need to make is when to begin taking Social Security benefits.

Your options

Many people choose to start receiving their monthly Social Security benefits as soon as they are eligible at age 62. This is an appropriate strategy in some situations, but postponing distributions by even a few years might increase the total income you will receive throughout your retirement.

You have three options regarding when to take Social Security benefits. You may receive:

  1. Smaller monthly payments by taking benefits as soon as you are eligible at age 62.
  2. Full payments by starting benefits at your normal retirement age.
  3. Larger payments by delaying your benefits after normal retirement age up until age 70.

Just because you can receive larger monthly payments by waiting does not necessarily mean that putting off benefits is the best move. In some instances, there are sound reasons to receive payments sooner rather than later.

For example, if you are in poor health or have a family history of medical problems, it may be prudent to start collecting Social Security as soon as you are eligible. On the other hand, if you are in good health and you have accumulated enough monetary resources to sustain you during the early years of your retirement, delaying your distributions and collecting larger monthly payments down the road may make more sense.

Opportunities for spouses

The decision about when to take Social Security benefits is relatively straightforward if you are single take benefits early and get smaller payments or delay and get larger payments. But for married taxpayers, the decision can get considerably more complicated because, in some situations, one spouse s decision can affect the maximum amount of Social Security benefit the other can receive.

Help from the SSA

In making a decision about when to start taking benefits, it is helpful to look at your estimated benefits. You can view your Social Security statement online after creating an account– http://ssa.gov/mystatement/. This information is calculated on your career earnings to that point. If your earned income continues to increase, so will your estimated benefits, up to a point. (For 2012, the maximum monthly benefit for a worker retiring at age 66 is $2,513.)

For more up-to-date information, the SSA s web site offers a useful calculator http://www.ssa.gov/estimator that allows you to estimate your future Social Security benefits. You can enter different levels of future income and retirement ages and compare how much you will receive under a variety of scenarios.

If you are close to retirement and you would like to receive a larger benefit, consider postponing retirement and working a few extra years. Doing so can help maximize your Social Security benefits and allow you to accumulate more funds in an IRA or employer-sponsored retirement plan such as a 401(k). The more financial resources you have, the more flexibility you have regarding when to start your Social Security benefits.

Plan for the long term

The trade-off between smaller payments sooner or larger payments later can hinge on a variety of considerations, including your current and expected financial profile and your health. Like so many financial decisions, this one has life-time consequences.

PYA can help evaluate the best options for you. Please contact the experts listed below at (800) 270-9629.

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