When should you start taking Social Security benefits?
Here are four considerations to help guide your decision.
When's the best time to tap your Social Security? As soon as you're eligible? At the last possible second? Generally you're eligible to begin receiving "full" benefits around the time you turn age 65 or your normal retirement age, assuming you've worked for at least 10 years. But there are advantages to holding out longer: The monthly payment you're entitled to will grow by about 8 percent for each year you delay payments until you reach age 70.
A larger monthly payment can help meet your income needs if you live to a ripe old age — especially since Social Security benefits are pegged to the rate of inflation. But personal factors may steer you toward taking benefits sooner than age 70 — perhaps even as early as age 62. "If you need Social Security to maintain your standard of living, it's probably best to take it sooner," says James Schaffer, Jr., an investment advisor with Waypoint Beacon Retirement Partners in Cleveland, Ohio. "But if it's not a critical income stream, you're likely better off with a higher income stream at a later age that will last a lifetime. Survivor benefits would be pegged off this higher number as well."
Here are four more things to think about:
Your marital status.
If you're married, you and your spouse can take Social Security benefits at different times. Say one spouse has earned a larger benefit than the other. If that spouse were to die first, the survivor would be entitled to the deceased spouse's higher payment. To make the most of that bonus, delaying the start of payments until age 70 could help ensure the surviving spouse will receive the largest benefit possible.
Your retirement age.
You may choose to take Social Security benefits as soon as you're eligible (at age 62) or to postpone benefits and rely on retirement savings as a bridge to cover your expenses. In some cases, the payoff of waiting may be worth the cost of drawing down your nest egg. Talk with a financial professional about whether you'd be better off taking Social Security and leaving your retirement savings untouched or delaying the start of benefits.
Your employment status.
If you're still working, consider delaying Social Security benefits. The reason: In 2012, for every $2 you earn above $14,640, $1 will be deducted from your benefit payments, assuming you have not reached full retirement age. Working may also make it more likely that your Social Security benefits will be taxed.
If you delay taking Social Security benefits, you'll receive a larger monthly benefit — but you could choose to take smaller payments when you're younger and invest the money. The point at which receiving larger benefits begins to pay off is sometimes called your break-even age. If you're concerned about your health or have a history of family medical issues, postponing benefits may not be a prudent move. Your financial advisor can help you calculate your break-even age under different scenarios.
Talk with a financial professional today about how Social Security benefits may help you reach your retirement goals.
» For more information about Social Security, visit the Social Security Administration's website.
- Full retirement age varies according to the year in which you were born. Details at http://www.ssa.gov/pubs/10035.html#a0=1, If you qualify for benefits as a survivor, your full retirement or normal retirement age may be different.
- Details here: http://www.ssa.gov/planners/taxes.htm
James Schaffer, Jr., and Waypoint Beacon Retirement Partners are not affiliates of the Principal Financial Group or any of its member companies.
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.