When should you take Social Security?

A crucial retirement planning decision for many workers involves deciding when to begin Social Security benefits. Anyone can begin collecting as early as age 62, but that means the retiree receives a permanent reduction in benefits that can reach 25% or more. Retirees can also wait until normal retirement age, which currently ranges from 65 and 10 months to 67, depending on the year they were born. Or, if they choose to keep working or just want to delay Social Security, they can wait until age 70 and get a benefits increase of about 8% for every year they wait to take Social Security after normal retirement age.

There are some general guidelines. First, if you are still working, it makes sense to put off collecting your benefit. If you claim a benefit between age 62 and your normal retirement age, then benefits are reduced by $1 for each $2 you earn over $13,560. Although you won’t face that reduction due to earned income after full retirement age, you still may get taxed on your benefit, and the higher your other earnings, the more Social Security will be taxed. If you are retiring as early as 62 and feel you can’t make ends meet without the benefit, you might want to think long and hard about retiring that young: you may not be financially ready to take the plunge. Or, if you are retiring early but don’t need the benefit, you may want to put it off for as long as possible so that you will eventually get a larger lifetime benefit.

If you knew when you were going to die, your decision would be much easier. Someone who will die relatively young would do better to take Social Security at 62. Even though the benefit would be reduced, they would collect more payments. However, if you live into normal old age, you would collect more lifetime benefits by delaying Social Security until normal retirement age or beyond. For instance, you would have to live past about age 76 to justify delaying the benefit until 66. Keep in mind that actuarial tables show the average 65-year-old will live until age 82 for males and 85 for females.

Social Security has a handy calculator you can use online at: http://www.socialsecurity.gov/OACT/quickcalc/when2retire.html.