When to take Social Security
Another benefit of working longer? Medicare.
Americans become eligible for
federal health insurance coverage at age 65.
"If you stop working at age
62 and lose health insurance, you have to
get supplemental insurance to bridge the gap
until you turn 65 and Medicare kicks in,"
Paying for such insurance can quickly deplete your savings.
Do you plan to work during retirement? If so, you have another incentive to delay collecting Social Security. Earning too much at a job after you begin collecting Social Security can negatively affect your benefit.
If you are under full retirement age for the entire year, the government deducts $1 from your benefit payment for every $2 you earn above the annual limit. For 2007, that limit is $12,960.
In the year you reach full retirement age, your benefit is reduced by $1 for every $3 you earn above $34,440 (in 2007) until the month you reach full retirement age.
You also will owe Social Security
and Medicare taxes on your earnings, even
if you are already receiving benefits.
benefits can pay off
Although it's often wise to postpone Social
Security until at least retirement age, there
are instances where taking early benefits
pays off despite the reduced monthly check,
"No one can predict how long you'll live, but if you're facing a potentially significant reduction in life expectancy and are short of income, taking Social Security early may be appropriate," he says.
Just be sure you budget for a reduced benefit.
If your full retirement age is 67 and you begin collecting Social Security at age 62, for example, your benefits are reduced by about 30 percent.
The reduction drops to 25 percent if you wait until you're 63, and so on.
The SSA provides a chart
of retirement benefits by birth year.
Married women are also good candidates for claiming early benefits, according to a 2005 study by economists at the Center for Retirement Research at Boston College.
That's because they are likely to outlive their husbands, and such women then become eligible to receive the greater of either their benefit or their late husband's benefit.
However, this scenario is only valid if the husband does not claim his benefits early, the authors point out. By not claiming early benefits, the husband effectively increases the monthly benefit his wife eventually receives upon his death.
What's your break-even?
To better determine when you should start drawing Social Security, it may help to calculate your break-even age.
Your break-even age occurs when
the total value of higher benefits (from postponing
retirement) starts to exceed the total value
of lower benefits (from choosing early retirement).
Here's an example: If you are
eligible to collect a reduced $900 benefit
at age 62 plus 1 month and your benefit would
increase to $1,251 at age 65 and 10 months,
your estimated break-even age is 75 years
and 5 months.
If you expect to live beyond that age, it would be financially worth your while to delay your retirement.
You can find your break-even
point using the SSA's calculator.
When it comes to calculating a start date for Social Security benefits, however, there's no one right age that's appropriate for everyone.
Consider your own financial need, health and post-retirement plans before making the call.