By FPA member Robert DiQuollo, CPA, CFP®
Last Updated: May 17, 2010
Deciding when to start receiving Social Security payments is an important decision, so it's wise to do some careful planning. Everyone can start taking reduced benefits at 62. You can also delay taking payments until you turn 70. Every year you wait until age 70 adds a substantial amount to your monthly check.
"Full retirement age" varies from 65, for people born in 1937 or earlier, to 67, for people born in 1960 or later. For everyone else, it's somewhere between those extremes.
Is it better to start taking benefits now or wait and get bigger payments in the future?
To make an intelligent decision, you have to find out what your check will be now, versus later — information that's found on your annual statement from Social Security, which you receive approximately four months before your birthday. This form shows you an estimated benefit amount available to you at age 62, normal retirement age (65, 66, or 67) and at age 70. You also need to consider your cash needs, investment strategy, your tax bracket and your life expectancy.
While the answer is different for each person, there are some general rules. If you're still working past your normal retirement age, you'll probably want to wait until 70 to begin taking benefits, or until you stop working — whichever comes first. Wage earners usually don't need the income, so they're typically better off waiting, particularly if they anticipate a normal life expectancy. Additionally, if you're working and taking benefits, a large portion of your benefits will probably be taxable.
Once you've stopped working, the decision is a tougher one. If you need the income, you'll need to start taking payments when you're eligible. But if you don't, the main determinant is your life expectancy. If you're healthy and believe you'll live into your 80s or longer, you'll get a much bigger benefit by waiting until you're 70 instead of starting at normal retirement age (65, 66, or 67).
Nothing beats spending time with a financial planner to make this decision.
FPA member Robert DiQuollo, CPA, CFP®, is President of Brinton Eaton, a boutique wealth advisory firm in Madison, N.J.
