Should You Delay Receiving Social Security?

You worked for decades and contributed a lot of your hard-earned money into the social security  system.  And now you may be wondering when is the time to start drawing on those benefits?  The question seems simple enough.  The answer, however, hinges on several factors.

The Basics:
You can start collecting social security benefits anytime between the ages of 62 to 70.  If you wait until full retirement age, which is now 66 for those born between 1943-1954, you will receive larger monthly checks.  However, if you need money before then or are, for example, in poor health, you can start receiving a reduced benefit at age 62; this amount is currently 75% of your full retirement benefit.   You can continue to work and receive social security.  If you are receiving benefits prior to full retirement age, you will have some restrictions on the amount of income you can earn.  In 2008, you lose $1 in social security benefits for every $2 dollars in gross earnings over $13,560.

For example, let’s assume your social security benefits at age 62 are $18,000 a year.  In 2008, you had earned income from your job of $49,560.  Since this is $36,000 over the penalty threshold ($49,560-$13,560) you would lose all your social security benefits ($18,000) for the year ($36,000 x 50%).  Therefore, there is no economic benefit in receiving social security prior to full retirement age.

Full retirement age or later:
If you wait until full retirement age, currently 66, you will receive 100% of your benefit and you can earn  any amount of money without having your benefits reduced.  However, even after you reach full retirement age you can choose to postpone benefits and get additional retirement credits for waiting.  For those born after 1942, your benefit goes up by two-thirds of 1% for every month you wait.  That’s 8% a year!  Once you reach age 70, there is no additional advantage to waiting.

Conclusion:
If longevity runs in your family and you don’t need the money now, it may make sense to delay taking social security at least until full retirement age.  The Social Security Administration can calculate the “breakeven” age for you.  On average, if you live longer than 78 to 83 years of age, you’re better off waiting.

Filed under: General