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When Should You Collect Social Security?

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by Al Benelli, CFP, FIC

When Should You Collect Social Security?

When should you collect Social Security? The answer may depend on how long you'll be around to collect it.   A growing number of Americans have been forced to delay their planned retirement date due to job and savings losses suffered during the past five years. According to a survey, done in October 2010 by Towers Watson, 40% of U.S. workers said they have resolved to retire later due to concerns about outliving their savings and fears of rising health care costs.1 Postponing retirement not only means working longer, but also delaying when you start collecting Social Security. Currently, workers can begin collecting Social Security as early as age 62 and as late as age 70. The longer you wait to start collecting, the higher your monthly payment will be. Your Social Security monthly payment is based on your earnings history and the age at which you begin collecting compared with your normal retirement age. This normal retirement age depends on the year you were born.  Those born in 1937 or earlier have age 65 as their “normal” retirement age.  Those between 1938 to 1942 have two months added to their normal age for each year after 1937 that they were born.  For instance, a person born in 1941 has a normal retirement age of 65 years, eight months. Those of us “Boomers” born 1943 to 1954 get full benefits at 66 while those born after 1954 but before 1960 get two months added to age 66 for each year beyond 1954.  If you were born 1960 or later, you have a full retirement age of 67.

Those choosing to collect before their normal retirement age face a reduction in monthly payments by as much as 30%. What's more, there is a stiff penalty for anyone who collects early and earns wages in excess of an annual earnings limit ($14,160 in 2011).

For those opting to delay collecting until after their normal retirement age, monthly payments increase by an amount that varies based on the year you were born. For each month you delay retirement past your normal retirement age, your monthly benefit will increase between 0.29% per month for someone born in 1925, to 0.67% for someone born after 1942.  Which is right for you will depend upon your financial situation as well as your anticipated life expectancy. Anyone with a good pension or substantial savings may want to delay a bit. Similarly, if you're in no hurry to retire, you may want to continue working longer and collect later.

Likewise, those with a family history of longevity who expect to live a long time stand to gain more by delaying. If you think it unlikely to survive beyond age 78, you may want to start collecting at age 62. And if you expect to survive beyond age 82, you might consider a delayed collection.  Whenever you decide to begin collecting, keep in mind that Social Security represents only 38% of the average retiree's income…2 so you'll need to save and plan ahead -- regardless of whether you collect sooner or later.

1,2Source: Social Security Administration, "Fast Facts & Figures About Social Security," August 2011.

Tags: boomers health care costs job normal retirement age social security watson

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