When to Take Social Security Benefits

Call it a silver tsunami, and call Kathleen Casey-Kirschling the tip of the wave. The oldest baby-boomer, Casey-Kirschling turns 62 at a tick after midnight on January 1, 2008, and she has already applied for Social Security benefits. Over the next 20 years, nearly 80 million boomers will be eligible to follow her lead. But just because you can apply at 62 doesn't mean you should.

If you were born between 1943 and 1954, you cannot receive full benefits until age 66. You may start collecting Social Security as early as 62, but your monthly check will be reduced by 25% for the rest of your life.

Collecting early makes sense for early retiree Casey-Kirschling. Social Security benefits will provide welcome income for the former teacher and nutrition consultant, and the reduction in benefits isn't a concern because she and her husband, Patrick, each have a pension and personal savings. "Social Security is just another supplement to our retirement," she says. "It's not the whole package and was never meant to be."

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Now or later? For others, deciding when to take Social Security benefits isn't so obvious. "There's a tendency to grab the bird in hand and collect benefits as soon as you can," says Conrad Ciccotello, professor of financial planning at Georgia State University. That's what the majority of retirees do. "But with longer life expectancies, the decision to take benefits early is less appropriate," says Ciccotello. There are only two scenarios in which the decision is clear-cut. "If you are ill and expect to die within the next few years, taking benefits at 62 makes more sense than waiting till 66," says Ciccotello. "Alternatively, if you plan to continue working, it pays to wait until the earnings test disappears."

In 2008, if you continue to work while collecting Social Security and you are younger than 66, you can earn up to $13,560 without jeopardizing Social Security benefits. After that, you lose $1 in benefits for every $2 you earn over the limit. Once you turn 66, you can earn any amount without reducing your benefits.

Over an average lifetime, you will collect about the same amount whether you take smaller benefits early or larger benefits later. But if you live beyond your so-called break-even age (which you can calculate at www.ssa.gov), you're better off waiting.

One problem with that calculation, says Ciccotello, is that it doesn't take investment earnings into account. Claiming benefits early might allow you to keep more of your savings invested longer. In that case, the higher your rate of return, the more sense it makes to let your savings grow and take benefits early.

Marital matters. Single workers, particularly those with little savings, should consider working as long as possible to maximize their Social Security benefits. For every year you delay collecting benefits beyond 66, you earn an 8% credit, up to 132% of your normal retirement benefit at age 70.

Married couples face the most challenging timing decision, especially if their income varies widely. The lower-earning spouseQusually the wifeQis entitled to three types of benefits: one based on her own earnings; a spousal benefit equal to half of her husband's benefit if it exceeds her own; and a survivor benefit equal to 100% of her husband's benefit after he dies. Although her retirement benefit would be permanently reduced if she collected early, she would still be entitled to her full survivor benefit as long as she was at least 66 when she collected it. To maximize survivor income, the husband should delay benefits as long as possible.