When should women begin drawing Social Security checks — and when should men begin doing so?

For married couples the decision is interdependent, but it has more serious implications for women because 1) women earn less money than men on average; 2) their work histories are spottier because they take time off to rear children or help parents, and 3) they tend to live longer than men.

Social Security basics
The choice is whether to begin drawing benefits as early as age 62 or wait until full retirement age (between 65 and 67, depending on year of birth), or even longer, to age 70. Early claims result in reduced benefits. Those who turn 62 between now and 2016 and draw benefits early suffer an estimated 25 percent pay cut compared to waiting until full retirement age. And those who wait until age 70 to claim benefits get a 32 percent pay increase over their full benefit amount.

These payouts have a break-even point, around age 81, at which point they will have added up to the same amount overall regardless of whether you opted for immediate or delayed gratification. The gamble is, if you wait to take benefits and die early, you lose. But if you wait to take benefits and live to a ripe old age, you win.

Of course, if you decide to wait, you need to have enough resources — ample savings or a source of income — that would enable you to hold off on applying for benefits. In fact, if you hold down a job in which you earn more than $12,960 (in 2007), it makes little or no sense to apply for early benefits since the benefit would be reduced by $1 for every $2 earned over that amount.

Issue is murky at best
So what’s the best course of action? Experts are divided on the issue. “I believe that more often it’s better for the woman to start (drawing benefits) at her full retirement age,” says Henry Hebeler, author of “Getting Started in a Financially Secure Retirement” and founder of
www.analyzenow.com. In his book, Hebeler paints several scenarios that point to the same conclusion — that men should wait until age 70 to begin collecting benefits, while women should wait until their full retirement age.

On the contrary, age 62 is the optimal age for many women to begin drawing benefits, say the authors of the article ”
When Should Women Claim Social Security Benefits?” which appears in the June issue of the Journal of Financial Planning. However, these authors agree that men should file later for benefits — ideally at age 69. More about this study later.

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.

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

A contrarian point of view
Alicia Munnell and Mauricio Soto of Boston College’s Center for Retirement Research looked at couples of varying ages and arrived at a startlingly different conclusion in the
study mentioned earlier. While single women should delay taking retirement until full retirement age, they say, the situation for married women is much different.

A married woman whose own benefit would equal 40 percent or more of her husband’s benefit should claim as early as possible
at age 62. Meanwhile her husband should hold off on collecting Social Security until age 69. Why should he do that? Because a woman stands to gain more when the survivor’s benefits kick in after he dies. In this case, the husband’s decision to delay claiming benefits is a selfless act that takes into consideration his wife’s longer lifespan instead of his own.

As for the woman’s decision to claim early benefits, her life expectancy isn’t the relevant part of the calculation; rather, her husband’s life expectancy is. “Because these benefits are expected to be received for a period shorter than the life expectancy of the average person, she has an incentive to claim as soon as possible,” the authors say.

The analysis gets more complicated if a woman’s benefits amount to less than a third of her husband’s. Then their relative ages play a part in the decision.

But how realistic is this analysis? How many men are willing to wait until age 69 to collect benefits? The answer: not many. Between 1992 and 2002, 58 percent of married men put in for benefits at age 62, 12 percent at age 63, 10 percent at 64 and 16 percent at 65. Less than 5 percent of married men waited until age 66 or later to put in their claims for Social Security benefits.

The authors concede that even though the system may provide incentives for many married women to claim benefits early, doing so may not always be in their best interests.

“Early claiming may maximize women’s Social Security ‘wealth,’ but it also encourages them to withdraw from the labor force, creating a loss of earnings and
401(k) savings, and extending the period over which they need to support themselves in retirement.”

Bud Hebeler and his wife know “a number of widows in their late 70s and 80s who would dearly have loved to have had larger Social Security checks,” he says.

To my way of thinking, unless they have ample resources, most Americans would be better off if they could hold off on collecting Social Security and work for as long as they can possibly stand it.

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning. If you have a comment or suggestion about this column, write to
Boomer Bucks.