Social Security: Wait or not to wait to collect benefits
If there is one question that I get asked more than any other, it’s about Social Security.
“Karen, should I start taking Social Security when I am eligible, or should I wait until I am at full retirement age, or should I hold out until I am 70?”
Of course, I sometimes give the easy answer of “it depends.” The reality is there are some facts to consider and then there are some personal circumstances to also ponder. So there is some help to guide your decision but it’s not foolproof since none of us know how long we are going to survive in retirement.
If you elect to start taking Social Security at 62, one of the things to remember is, although you are receiving benefits up to about 48 months earlier, you are going to have a permanent reduction of about 25 percent. It’s important to keep in mind that your Social Security check will be about 75 percent of your benefit and even once you reach the other milestone age it still remains at that rate.
“Full retirement age” depends on when you were born. If you were born between 1943 and 1954, the full retirement age is 66. Once we pass 1954, add two months to each year, so once we get to 1960, the full retirement age is 67, and that’s when you would receive 100 percent of the benefit.
If you wait until age 70, or if you delay your retirement, for each year you delay your retirement it’s an 8 percent extra credit for delaying it. So if you wait until age 70, you would have 132 percent of your benefit. You can see then that the difference between taking the benefit at age 62 is significantly less than waiting until age 70. Given that so many people live well into their 80s and beyond, it’s important to factor in longevity into your thought process.
There are also survivor benefits that one should keep in mind. The benefit to your survivor or to family members like children is greater if you wait longer and take the higher benefit. For example, if the higher-benefit spouse passes away, that benefit goes to the survivor so the longer you wait, the higher the possible benefit.
I can’t go into every nuance of Social Security in this space but I’d like to point out a few issues that merit consideration.
You may be familiar with the idea that you can take your benefits at age 62 and change your mind at age 70, pay all the money back at age 70 and then collect 132 percent of your benefit. The rule has changed and you no longer have the luxury of seeing how it goes, seeing if maybe you don’t need the money, or you get a part-time job in retirement, and end up being able to wait until age 70.
You only have one year, or 12 months, from the time you begin receiving benefits to change your mind and return the money to reset your Social Security clock. That’s an important factor to consider. Be sure and plan ahead is the cautionary tale here.
You may also be familiar with what’s called the “file and suspend” election. This is when the retiree elects to file for benefits and immediately suspend those benefits. Provided you are at full retirement age and your spouse is at least 62, or you have children under 18, this would allow you to elect the Social Security payout of the spousal benefit and you could save your benefit until you are 70 and then get the higher 132 percent figure. This way you can get your spouse’s benefit and wait until 70 to begin collecting your own. If you are planning to work until 70, this may be a good alternative.
Confused enough for one day? There’s very little that’s easy about Social Security. If you visit www.ssa.gov and click on “retirement” at the top of the page, the retirement planner and estimator can help.
Karen Paul is a financial consultant in Burlington.