Friday, August 30, 2013

When to Take Your Social Security Early

As most readers of this blog know, I am a big proponent of waiting as long as possible before you begin to take your Social Security benefits.  This is because the longer you wait, the larger your check will be each month.  This has always seemed like an easy, clear-cut decision for me, and I often wondered why intelligent people I knew were choosing to take their benefits early.

Recently, in a conversation with one of my friends, I realized that waiting to take your benefits until you are age 66 or older is not the best business decision for everyone.  In fact, for many people, it can be a much better financial decision to take your benefits early.  If you need to stop working before you reach age 66, it can take ten to twelve years to make up for the money you would lose by going without Social Security for a couple of years.  In fact, as result of this conversation and a meeting I had at the Social Security office, I have actually decided to go ahead and apply for my benefits at age 64.

Reasons to Take Social Security Early

1.  In my situation, my husband has a serious illness which may shorten his life.  Although we hope he will live many more years, if he does die before me I will receive Social Security widow's benefits based on his earnings.  Meanwhile, since I recently retired from a job at age 64, I can go ahead and collect my own benefits now, which will amount to about 42 percent of my husband's Social Security.  We decided together that there was no reason to postpone my benefits for two years, during which time I would have lost over $24,000, since it would take more than a decade for us to make up that amount of money from the slightly increased benefits I would have received by waiting.  In other words, if the family breadwinner is in poor health, it may be wise for the spouse to begin collecting benefits as soon as possible.  If my husband manages to live another 15 or 20 years with his illness, we might regret the decision.  However, that was a risk we were willing to take.

2.  Even if there is no spouse involved, you may be wise to take your Social Security benefits early if you do not expect to live until your late 70's or early 80's.  Many people with a debilitating chronic illness may choose to make this choice.  Although you will receive a smaller payment when you collect early, you could receive the payments for many more years.  According to estimates by the Social Security Administration, a person who begins to collect at age 62 will receive payments that are only about half as large as a person who waits until they are 70 years old.  However, because they will receive benefits for eight additional years, the break-even point will occur in their late 70's.  If your health makes it likely that you will not live until your late 70's, then you may receive more in total earnings by collecting early.  In addition, if you don't need to use all the money in your early 60's and you invest some of it, the break even age may even be older.

3.  Some people may also decide to take their benefits early because of lifestyle choices.  For example, if they want to travel or pursue a second career, taking their benefits early may make it possible for them to pursue their goals while they are still young enough to enjoy the experience.  However, in this case it is important for people to realize that they are making a life-long decision.  Once they are tired of traveling or pursuing the second career, they cannot go back and ask for more money.  This choice is more risky than the ones mentioned above that were based on life expectancy.  If you are healthy and live a long time, you may end up regretting your decision to collect your benefits early, since your income will be so low.

4.  A fourth legitimate reason why some people may choose to take their Social Security benefits early is when unemployment or illness leaves them with no other income options.  In many cases, people are grateful that they have earned these benefits so that they have some source of income when it is no longer possible for them to earn money any other way.  Of course, most financial planners still recommend that people rely on some other source of income, if at all possible, and postpone collecting their Social Security as long as possible.  If they do this, the income they receive later may be even more meaningful.  However, if you have no other choice, you may be grateful that you have the money available.

No matter when you decide to collect your Social Security benefits, between the ages of 62 and 70, you need to do research and talk to representatives in the Social Security office before making a final decision.  Everyone's situation is different.  Do not base your decision on what your friends are doing.  Finally, despite the reasons I gave above for collecting early, if you can postpone collecting for a few years, it is still the best decision for many people.

Source:

http://www.dailyfinance.com/2013/04/07/taking-social-security-early-isnt-as-dumb-as-many/

If you are planning your retirement, you may also want to check out the index articles below.  Each of them contains links to a variety of articles on that topic:

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement


You are reading from the blog:  http://baby-boomer-retirement.blogspot.com

Copy of old Social Security card courtesy of www.en.wikipedia.org/commons

1 comment:

  1. This is a very complicated issue but you've presented it in an easy to understand way.

    ReplyDelete

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