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Dear Liz,

I am a 61-year-old divorced female who earns $43,000. I have $430,000 in a 401(k), $75,000 equity in my home and $10,000 in debt, which I plan on mostly paying off within a year. I now net $2,500 a month, but my expenses are $4,500, so I’m drawing on my $35,000 savings account. If I collect Social Security at 63, I would get approximately $1,650 per month. If, instead, I delay filing for Social Security and draw on my 401(k) at a 4% withdrawal rate, that would give me $1,453, allowing me just under $4,000 in monthly income. Do you recommend drawing from the 401(k) and allowing the Social Security to increase?

— Susan

Dear Susan,

It’s usually better to delay filing for Social Security benefits at least until full retirement age (in your case, age 66), even if that requires tapping retirement funds. In your case, it’s a slam-dunk.

If you start collecting benefits before full retirement age, Social Security withholds $1 in benefits for every $2 you earn in excess of an exemption amount, which in 2015 is $15,720. In your case, $1,137 of your $1,650 monthly benefit would be withheld, leaving you just $513. The money that’s withheld is eventually added back to your Social Security checks, but that doesn’t help with your cash-flow problem now.

Here’s how the math works:

$43,000 salary – $15,720 exempt earnings = $27,280.

Half of $27,280 = $13,640 of Social Security benefits to be withheld.

That amounts to a monthly amount of $1,137.

Subtract $1,137 from the $1,650 Social Security benefit.

You’re left with a benefit of $513.

For those who reach full retirement age in 2015, the annual exempt amount is $41,880 — until your birthday month. One dollar out of every $3 above this amount would be withheld from your Social Security check.

After you reach full retirement age, no Social Security benefits are withheld, regardless of how much you earn.

Starting Social Security early has other disadvantages. It means locking in a benefit that’s much smaller than what you could get by waiting. That could be disastrous later in life, because the longer you live, the more likely you are to run through all your savings and wind up depending on your Social Security check for most or all of your income.

You also give up the option of switching from spousal benefits to your own benefit. If your marriage lasted at least 10 years, you’ve been divorced at least two years and you wait until 66 to apply, you can file a restricted application for spousal benefits based on your ex’s work record (assuming he’s 62 or older). Then you can switch to your own benefit at age 70, when it maxes out. This “claim now, claim more later” strategy can add tens of thousands of dollars to what you get from Social Security and is worth investigating.

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