retirement

When to claim Social Security

Regardless of what the experts think, most Americans are probably not doing a lot of analysis to arrive at the conclusion that seems most sensible for them, which is to collect the money at the first possible opportunity. Nearly 60 percent of women and 53 percent of men stampede the Social Security Administration offices to put their claim in for benefits at age 62.

The rules of the game
Social Security benefits are an increasingly significant source of retirement income for aging Americans, according to a recent report from the Employee Benefit Research Institute. Benefits are based on the 35 years of work history during which you earned the most money. If there are years with no or low earnings, these are included in the calculation. The more you earn, the more you're entitled to collect, up to a certain point.

The maximum monthly benefit amount in 2007 is $2,116, but the average benefit is $1,044, according to Clarence C. Rose, author of "Social Security Spousal Benefit Considerations in Early Retirement," which appeared in the May issue of the Journal of Financial Service Professionals.

A low-wage or no-wage earning spouse (I'll refer to this person as a woman since women are much more often in this predicament than men) can get benefits based on her own work history or she can get 50 percent of her spouse's benefit -- whichever is greater. This also applies to divorced folks, though restrictions apply.

Again, early claims result in a big penalty. If a woman elects spousal benefits at age 62 this year, her benefit would be only 35 percent of her husband's full retirement benefit. If both spouses elect to collect Social Security at age 62, the benefit for the couple is reduced to somewhere between 68 percent and 73 percent of the full retirement benefit, depending on their year of birth. To illustrate, a $3,000 benefit for the couple ($2,000 for the main wage earner and half that for the spouse) would be reduced to somewhere between $2,050 and $2,200, according to Rose. "Opting for early retirement dramatically reduces the combined benefits for a married couple receiving the spousal benefit," he says.

To complicate matters, a married woman's future income can be impacted by the age at which her spouse begins to draw benefits. If she survives her husband, she is entitled to survivor's benefits at 100 percent. But if he took a reduced benefit by retiring early, then her benefit is likewise reduced.

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Rose says that couples using the spousal benefit are usually better off if they delay getting benefits until full retirement age.

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