Congratulations! You're retired. Now what?

For at least the next 33 years, retirees can expect to get 100 percent of their Social Security benefits. Americans trying to cash in after 2041 will receive only 78 percent or less of their benefits unless changes are made, according to the Social Security Administration Web site.

The percentage of income that can be replaced in retirement by Social Security depends on the level of income earned throughout the working years. For example, the Social Security Administration Web site says that those who earn the minimum wage on average can expect Social Security to replace about 60 percent of their income.

A high earner will have only about 26 percent of their income replaced by Social Security. But most people whose earnings fall more in the middle can expect about 42 percent. The average monthly benefit received by a retired worker at the end of June 2007 was $1,050.

Anyone can easily figure how much they will be getting from their Personal Earnings and Benefit Estimate Statement, but the important question is when you'll begin taking the benefits.

"You can start taking it at 62, and when you're 70 and-a-half, they start paying you whether you want it or not. So you have all those ranges of ages between 62 and 70 to take the benefit," says Olivia Mitchell, professor of insurance and risk management, business and public policy, and head of the Pension Research Council at the Wharton School, University of Pennsylvania.

Two considerations influence the amount of benefits retirees receive. The first is employment. If you are working in your 60s, it may not make sense to start drawing benefits.

For people under the full retirement age, for every $2 earned above the annual limit of $13,560, $1 gets taken out of Social Security benefits if they're already being drawn. This is not money forever lost -- you will at least get most of it back, if not all, eventually. To further complicate the math, the earnings limit increases the year you reach full retirement age, in 2008 it is $36,120, with only $1 for every $3 earned taken out. Finally, when you do reach the month you turn the full retirement age, there's no earnings limit, and you can receive full benefits no matter how much you earn.

A second consideration is that monthly benefits are reduced if you begin drawing before full retirement age. But waiting may not always be the smartest move. Someone in poor health might assume they only have 15 years to live and begin taking benefits at age 62. If their mortality expectations prove correct, they will have gotten more money out of the deal than if they had waited four years to get the full benefits.

There is a breakeven point. "We generally find it to be around age 77 to 78," says Parks. "If they collect Social Security early, at age 62, it will provide them with a greater income from age 62 to (age) 77 or 78, and then it switches."

If they wait until age 66 to begin collecting and live beyond that breakeven point, "then they will have received more money."

As with everything related to financial planning, what's best for you just depends on your situation.


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