The Case for Taking Social Security Early

EDITOR'S NOTE: This article was originally published in the February 2011 issue of Kiplinger's Retirement Report. To subscribe, click here.

Most retirees eventually ask this question: Should I claim Social Security as soon as I'm eligible, or should I wait? Delaying can significantly increase your retirement income. But for some people it makes sense to collect benefits early.

Our general advice is to delay as long as you can. For people born between 1943 and 1954, the full retirement age is 66. They can start collecting at 62, but they will face a 25% lifetime reduction in benefits. For each year they wait past 66, they get an 8% retirement credit until age 70. "The longer you can delay, the more benefits there will be," says Joseph Montanaro, a certified financial planner with USAA, a financial-services firm.

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But there are scenarios in which a beneficiary might consider opening the spigot early on the Social Security income stream. Here they are:

Ill health. Henry Hebeler, creator of AnalyzeNow.com, says users of his Web site who want to take benefits early tell him they think they will have a short life span. "Break-even age is normally at about 78 -- plus or minus a few years," says Hebeler. The break-even age is the point when the cumulative value of reduced early benefits equals the total value of the benefits you would have received if you waited until full retirement age to collect. If there's a great chance of dying before the break-even, consider claiming early.

Before deciding, factor in the amount of money you're forgoing by claiming early and how much it would cost to buy an annuity to make up that amount. "Social Security is the best and cheapest longevity insurance you can get," Hebeler says. Also, married couples should assess the impact on the spouse's survivor benefit, which is generally 100% of the higher-earning spouse's benefit.

Cash-strapped. You may need the money to make ends meet. "It's better to take Social Security than go into debt," says Hebeler.

If you take a low-paying job to pay expenses, be aware of the earnings test. When you claim benefits before full retirement age, you'll forfeit $1 for every $2 you earn over the earnings limit of $14,160. "Generally, it doesn't make sense to take benefits early if you're still working, unless you have irregular income or income from part-time work," says Montanaro.

Single. Never-marrieds may find less reason to wait past full retirement age to take benefits. Many singles will not have enough savings to delay until 70. And with no spouse, there's no reason to wait until 70 as a way to maximize the survivor benefit. Also, if you have nonspouse heirs, such as a niece or nephew, taking Social Security early can prevent you from spending savings that can be passed down.

Lower-earning spouse. If your lifetime earnings are much lower than your spouse's, you could take your benefit early but your higher-earning spouse should delay. This way, you'll bring some money into the household now, while the higher-earning spouse's benefit grows, says Christine Fahlund, senior financial planner for T. Rowe Price.

This strategy is especially important if the wife is the low earner and the husband is the high earner, according to a study by Boston College's Center for Retirement Research. The goals are to increase the household income and the survivor benefit.

Researchers determined that if the lower-earning wife is three to six years younger than her husband and her earnings are 30% to 40% of his, she should claim at 62 and he should claim at 69. Because he's likely to die earlier, her reduced benefit will be temporary and she will then qualify for the higher survivor benefit.

A survivor's choice. If your spouse dies, you can claim a survivor benefit as early as age 60. However, the benefit will be reduced by 28.5% below what you would have received if you waited until age 66.

Claim the money early if you need it. Another reason to collect early: If your own benefit will be larger than your survivor benefit if you wait to claim your own. You can take your survivor benefit first, and maximize your own benefit by delaying, says Fahlund. At age 70, you can switch from the survivor benefit to your own.