When Should You Claim Social Security Benefits?

Jan 27 2014, 10:37am CST | by

I would like to be able to say that there is no right or wrong answer as to when you should collect social security, but the truth is that the wrong answer could cost you atens of thousands of dollars.

Social Security is the federally maintained social benefits program that, for many retirees, is a primary source of income in retirement. If you have worked for a minimum of ten years and paid social security taxes or have been married to a participant (under certain conditions), then you will be entitled to claim Social Security benefits. The oh so important question is when do you start to collect them and what is the “cost” of the other options?

If you enroll at the current full retirement age of 66, you would get 100% of your full benefit. But if you started early at 62, you’ll be entitled to only 75% of your full benefit. On the other hand, if you can wait to claim benefits until the age of 70, your monthly payout would be 132%. Essentially, each year you can afford to wait increases your benefit, on average over those eight years, by approximately 8% each year.

As a more specific example, let’s say that your average annual earnings Social Security benefits determinant was $75,000. At the age of 62 your annual benefit would be $15,888. However, your benefit would increase to $21,181 if you could wait to make your claim until you reach the full retirement age of 66. And if you could hold out until you were 70, then the annual benefit amount would increase to $28,821!  Simply put; an 8-year wait gets you an 81% increase in annual Social Security payments.

There are, however, a number of issues to consider as you approach the question of when to start taking your Social Security benefits.

  1. Your current health. The healthier you are, generally, the longer you will live and so waiting to start taking benefits may make sense.
  2. Your ability to work. If you have a very physical job you may not be able to continue working so starting benefits sooner may make sense.
  3. Will you work prior to your full retirement age while collecting benefits? If so, you may not want to take social security early since if you make over a specific amount your Social Security benefits are reduced. In the year before you reach your full retirement age, the earnings limitation will rise, amounting to a deferment of $1 for every $3 earned.
  4. Do you come from long-lived family? If your parents and aunts and uncles lived into their 80’s and 90’s you could make the assumption that you probably will, as well. The longer you believe you might live the more sense it makes to wait to claim benefits.
  5. Your desire or need to work. If you work and do not need the Social Security benefit it may make sense to wait so that you can collect a bigger check later.
  6. Other financial resources. If you have IRA or 401(k) accounts that you can rely on and use those benefits for each year that you wait after your full retirement age then your Social Security payout goes up 8% each year. There is no market risk to get that increased amount unlike the IRA or 401(k) and there is no other investment that will give you a pretty much guaranteed 8% annual return.

But, even after all those considerations, the complications can grow if you are married because there are also spousal benefits to consider. This becomes important for those that were married and never worked or who worked for a limited time, part time or had a smaller salary compared to their spouse. The spousal benefit at full retirement age is 50% of the spouse’s benefit. For example, let’s say both individuals are age 66 and one spouse has a full benefit of $2,800 a month while the other spouse, who only worked part time over a limited time frame, has $550 as their full benefit. In this case, the spousal benefit would be half of the higher amount or $1,400 and a better choice.

But even when both spouses worked and have similar benefits, it’s possible to claim the spousal benefit at full retirement age and not take your larger personal amount (instead letting that future benefit grow at 8% per year) and then, at age 70, dropping the spousal benefit amount and claiming your own much larger benefit.

Many new beneficiaries are getting better informed; the numbers of individuals who are waiting until the age of 66 to claim benefits has been surging in recent years. About 11% wait until the age of 67 or beyond to claim, with many holding out until age 70.

The drawback to waiting to claim Social Security benefits is the ultimate one: death. If you die before you file for Social Security benefits then no one wins – not you, not your spouse or your dependents.

Unfortunately, there are many other considerations and, even more unfortunate, the Social Security office personnel are not there to give advice as to the best strategy for your particular situation. That means that you need to have all of the information so that you make the best decision and to that end you will need to do a bit of research.

So, while the answer to the question when to take Social Security is clearly a personal one, it might not be quite so clear with the many variables, thus you may want to do a little digging into all of your options before you make the decision about when to start taking your Social Security benefits.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Hawkeye Technology Improves Time Clock Reporting and Payroll Integration in TimeClick LE 12
Logan, UT, April 18, 2014 --(PR.com)-- Hawkeye Technology, creator of TimeClick, a leading employee time clock software, announces the release of TimeClick version LE 12. This new version offers powerful new reporting...
 
 
Airbnb Cofounders Are Billionaires As Share Economy Leader Closes $450 Million Round At $10 Billion Valuation
It took a month, but Airbnb’s founders are confirmed as the share economy’s first billionaires, at least on paper. That’s because the home-sharing site has closed its new fundraising round, raising $450 million at a $10...
 
 
`Taxpayers Rely On IRS Guidance At Their Own Peril,' Tax Judge Rules
Before filing your 2013 tax return, did you  consult an Internal Revenue Service publication for clarification of some confusing point? That’s living dangerously. Or so a U.S.  Tax Court Judge declared this week. “...
 
 
Predicting The Most Expensive Games Of The 2014 NFL Schedule
Even at the times of little news during the offseason, the NFL keeps fans in anticipation of what might come next. With less than a month until the NFL Draft, the release of the 2014 NFL schedule is expected sooner. For...
 
 
 

Latest from the Network

The New Role Of Leaders
When Alfred Sloan created the modern corporation at General Motors, he based it on the military.  The company was split into divisions, each with its own leadership.  Information flowed up, orders went down and your...
Read more on Auto Balla
 
Marisa Tomei is too old to play Lady Gaga?
Marisa Tomei thinks she's too old to play Lady Gaga in a movie. The 'The Wrestler' actress was flattered to hear the 'Applause' hitmaker would like her to play the 28-year-old singer if there is ever a film made about...
Read more on Celebrity Balla
 
Hawkeye Technology Improves Time Clock Reporting and Payroll Integration in TimeClick LE 12
Logan, UT, April 18, 2014 --(PR.com)-- Hawkeye Technology, creator of TimeClick, a leading employee time clock software, announces the release of TimeClick version LE 12. This new version offers powerful new reporting...
Read more on Business Balla
 
Airbnb Cofounders Are Billionaires As Share Economy Leader Closes $450 Million Round At $10 Billion Valuation
It took a month, but Airbnb’s founders are confirmed as the share economy’s first billionaires, at least on paper. That’s because the home-sharing site has closed its new fundraising round, raising $450 million at a $10...
Read more on Business Balla
 
`Taxpayers Rely On IRS Guidance At Their Own Peril,' Tax Judge Rules
Before filing your 2013 tax return, did you  consult an Internal Revenue Service publication for clarification of some confusing point? That’s living dangerously. Or so a U.S.  Tax Court Judge declared this week. “...
Read more on Business Balla
 
Predicting The Most Expensive Games Of The 2014 NFL Schedule
Even at the times of little news during the offseason, the NFL keeps fans in anticipation of what might come next. With less than a month until the NFL Draft, the release of the 2014 NFL schedule is expected sooner. For...
Read more on Business Balla
 
How The Wealthiest Families Make And Lose Their Money -- Part 5
In this series of articles on wealth creation and maintenance, we have hit on a few key findings of researchers and practitioners.  The vast majority of family wealth stems from business ownership and not inheritance. ...
Read more on Business Balla
 
Can High-Speed Internet Spark Better-Paying Jobs?
Many of us look at high-speed internet as a way to enjoy pleasures like clearer HDTV and speedier Wi-Fi. But as lightening-fast service gets rolled out in new markets, it could also pave the way to innovation–and new...
Read more on Business Balla
 
For NHL and NBA Playoffs, Parking, Like Tickets, Also Have A Premium
When the Nets and Raptors tip off tomorrow afternoon, the NBA playoffs will be underway.  Along with the NHL playoffs, many think the next two months are the most exciting in all of sports. Over the course of the next...
Read more on Business Balla
 
The Week Ahead: A Spring Breakout for the Economy?
Just a week ago the stock market was looking quite vulnerable as most of the major averages closed near their lows last Friday, April 11. There were signs of heavy selling, so I concluded last week that “On a short-term...
Read more on Business Balla
 
 
Auto Balla Sexy Balla Sport Balla TV Balla Politics Balla Movie Balla Apple Balla Business Balla Ad Balla Celebrity Balla