Dear Dr. Don,
Hello, I have enjoyed reading many of your answers to folks about retirement and Social Security. I will be 65 this month. I am self-employed, have a mortgage and am single. I only have a small amount of savings and will have to continue to work as long as possible. Would it be to my advantage to wait until I am 66 years old to start collecting benefits, or should I start now?

Thank you,
— Cheryl Countdown

Dear Cheryl,
I absolutely think you should wait until your full retirement age to claim Social Security benefits, and if you’re able to, you should consider waiting until up to age 70 to claim benefits so you can earn delayed retirement credits. (I don’t know the details of your health care plan, but it’s likely that you’ll still want to file for Medicare at age 65.)

When you apply for Social Security benefits prior to your full retirement age, you receive a reduced benefit based on the number of months between when you file and when you reach full retirement age. If you file for benefits this month, when you turn 65, you’ll receive 93.3 percent of the benefit you would have received at your full retirement age of 66. If you’re able to wait until age 70 to claim benefits, your annual benefits will be 132 percent of the benefit you would have received at age 66.

Since you would still be working when you file at 65, it’s possible that you would lose part of your monthly Social Security benefit. When you are under full retirement age during an entire calendar year, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual limit. In 2012, the annual limit is $14,640.

In the year you reach full retirement age, Social Security deducts $1 in benefits for every $3 you earn above a different dollar limit ($38,880 in 2012), but it only considers the earnings before the month you reach full retirement age. If your earnings will be over the limit but you will be retired for part of the year, Social Security has a special rule that applies to earnings for that year.

Under this special rule, Social Security allows you to get your full check for any whole month you are retired, regardless of your yearly earnings. In addition, if you are self-employed, Social Security does consider how much work you do in your business to determine whether you are retired.

Social Security benefits may also be taxable, based on your annual income. If you file a federal tax return as an individual and your combined income — defined as your adjusted gross income, plus nontaxable interest and half of your Social Security benefits, is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. If your combined income is more than $34,000, then up to 85 percent of your Social Security benefits may be taxable.

If you are an ex-spouse, were married to your ex for more than 10 years and have never remarried, you might also be eligible for a spousal benefit. If that’s your situation, then consider filing for a spousal benefit at your full retirement age, while earning delayed retirement credits on your own work record up to age 70. When you hit 70, you would file for Social Security benefits based on your work record.

Thanks to Edward Lafferty, a public affairs specialist at the Social Security Administration, for helping me with this reply.

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