When Is the Right Time for You to Start Taking Social Security?

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Social SecurityA recent working paper from the National Bureau of Economic Research took a close look at when people should start drawing Social Security benefits, as well as whether the decisions people make match up with what theory says they ought to do.

What researchers found was a disconnect: It turns out that while many people should consider waiting to take benefits, few people make their decisions based on the most important factors.

The Take-Wait Trade-Off

Right now, you can start taking Social Security as soon as you turn 62. But there's a catch: If you take benefits at your earliest opportunity, you'll take a haircut on your monthly payment, getting 25% less than you would if you waited until your normal retirement age of 66. Taking benefits early also has an impact on how much your spouse will receive if your spouse gets payments based on your work record.

On the other hand, if you don't even need the money at age 66, you can put off starting to get Social Security until your 70th birthday. For each year beyond age 66 that you wait, your monthly benefits will get an 8% increase.

So there's clearly a trade-off. Wait longer and you'll eventually get bigger monthly payments, but you'll collect fewer months of benefits over the course of your lifetime. Start earlier and you'll get money faster, but in the long run, you could be worse off.

Key Factors to Consider

According to the study, current interest rates are the key to when most people should take Social Security.

When interest rates are low, the reward from getting higher monthly payments later is a lot greater than the value of getting income now, making it pay to wait. When interest rates are high, it makes more sense to get money sooner rather than later, even at the expense of getting smaller monthly payments. Right now, rates are low enough to make waiting the smart choice for most people.

In addition, family considerations -- whether you're married or not -- play a role.

At current rates, unmarried retirees should delay taking Social Security if possible, although the study found that men shouldn't wait until age 70 because of their shorter life expectancies. Married retirees, on the other hand, have a balancing act as one spouse may get payments based on the other spouse's work history. In general, for one-income families, interest rates have to be very high in order for it to make sense to take benefits sooner than later. In two-earner families, the person with the higher income should usually wait, while the lower-income spouse should take spousal benefits at normal retirement age.

This Is Not a Drill

In the real world, though, people can't look at Social Security as a theoretical exercise. The study found that retirees with higher levels of education tended to wait to receive payments, but that was often because they had more savings set aside and thus didn't need benefits as much.

In addition, your work status makes a big difference. More than 75% of early retirees took their benefits right at age 62. On the other hand, it usually doesn't make sense for people who are still working to take benefits before age 66, as your Social Security benefits get reduced by $1 for every $2 you make above $14,640 per year until the year you reach your normal retirement age.

What You Should Do

As with any study, this research gives broad guidelines, rather than specific advice. In particular, with the research based on actuarial statistics, it doesn't take into account any personal health issues you may have. In general, the longer you expect to live, the more it makes sense to wait.

As complicated as this question is, the key takeaway is to remember that taking Social Security isn't something you should decide on a whim. If you consider carefully all the trade-offs involved, you can make a decision that could mean thousands of extra dollars for you and your family.

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53 Comments

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gts31bumbee

How is it the best kept secret and loop holes, if any are not discussed concerning SS offset ! Regan's gift to many with municipal pensions !

April 27 2012 at 6:50 PM Report abuse rate up rate down Reply
padams7187

Social Security would be just fine if Congress would keep their hands of the intrest that the trust fund earns. I will be entering middle age next month, I am still working and paying into the fund. I made my first payment into SS in 1958. I have been recieving my husbands benifits for four years. And since I will be 70 in May I will start drawing mine. I have paid into SS every year all year since 1958 and I think everyone should pay all year. The people that stop paying after the limit would not miss it.

April 24 2012 at 9:09 PM Report abuse rate up rate down Reply
Idontgetit

If social security is in so much danger, why are men who wont work in pie shop for all the pies able to draw off of theirwives who have supported them their whole married lives? I know someone who is doing this and will draw more from SS than I will and I have worked since I was 17 years old! That is part of what is wrong with the system and the other part is we encourage people to not work by giving them money and free education just because they have babies and more babies

April 24 2012 at 2:29 PM Report abuse rate up rate down Reply
marianneevans11

THIS IS A "DID YOU KNOW" Comment for all bloggers here:

ONE PART OF SOCIAL SECURITY THAT I DISAGREE WITH and that is a divorced spouse can collect on her EX-SPOUSE's social security AND so can the second wife collect on the same ONE MAN's social security benefit! If that isn't draining our system, then what! To each his own I say! Unless you are disabled! END OF STORY!

April 24 2012 at 12:44 PM Report abuse rate up rate down Reply
diabmang

I will collect SS when I turn 62. I've known people who waited until they were 65 or older, and have regretted it. I will still be young enough to do and enjoy things I put off while I was working.

March 22 2012 at 4:11 PM Report abuse +1 rate up rate down Reply
gsus1927

it pays to take it early with the penalty. First you may not live to see 66, so use what youve paid into all these years . Second if you wait and live , the way its going it may not even be there for you at 66 , and theres talk of extending it to 70 anyway. im taking it early . with my small pension and ss ill just tread water.

March 22 2012 at 3:50 PM Report abuse +2 rate up rate down Reply
allen schroeder

There are several relatively simple and painless ways to prolong S.S. The first is to raise the cut-off threshold from $130,000, to $300,000 immediately.This will partially make up for that ridiculous tax break for the ultra-wealthy--that is STILL on the books!

March 22 2012 at 3:11 PM Report abuse -1 rate up rate down Reply
fboutup

I surmise the government has done everyone a disservice when they allowed for the representation and the continued belief that the SS tax and Medicare tax collected from people was somehow akin to a banked retirement plan. So many people comment on how they have paid into the system and now the money should be there. As SSA propaganda will tell you, think of the SS program as a tract between generations, you pay in now so an older generation can collect benefits and when you go to collect another generation will pay your benefits. YOUR MONEY IS GONE !! If another "investor/generation" doesn't step up to fill the void you won't be getting any payments eventually. Like any good con artist the government knew everyone misunderstood the program but did not dissuade them from believing some "account" existed with their name on it. It is just another tax they collect and it was spent long ago. If an insurance or brokerage company operated this way they would be indicted on fraud charges. To determine what you are entitled to collect you need to determine how much is in an account with your name on it that you can drive to Washington and withdraw at any time like a bank/pension/IRA account. The answer is NONE. Sorry, you got screwed - thanks for playing - come again soon. Remember to vote for any one of the conspirators - and they are ALL conspirators in this fraud.

March 22 2012 at 3:10 PM Report abuse +1 rate up rate down Reply
nottenkamper

I started collecting at 62 because I have other sources of income, and there is NO way we know how long we will live, or IF there will be social security in the future. Who thinks about they will get to collect in the future with the
socialism we are headed towards? It is about surviving in "the day" now in America. We are owned by China, etc, and gas is going towards 7 dollars a gallon...think what that affect will have on all our economy. Take the money and run.

March 22 2012 at 2:39 PM Report abuse +1 rate up rate down Reply
ann

I have been paying into SS since I was 16 years old and all of my employers have matched my payments . In a year and a half I will be 62. My Social Security Benefits and Medicare are not entitlements, they are funds that were have been paying into SS for 44 years, and my employers matched my payments, that equals 15% of my lifetime earnings. I will retire next year. My Social Security Benefits and Medicare are not entitlements. Millions of us paid into this Fund. The money should never have been touched. There would have been more than enough for retirees, if it had just been put in a simple interest bearing accounts Washington raided and borrowed from the funds and is now saying they can't support SS........., they were never suppose to. It was meant to be separate and self supporting.
Our Government sends 100 of billions of dollars in aid to foreign countries, and retirees who paid for the entire Social Security Program, including Medicare, (which covers only 80%), are told we are a drain on the economy. "Congressional benefits", are a drain on the economy and the way they spend our money is about to destroy it.

March 22 2012 at 2:29 PM Report abuse +4 rate up rate down Reply
1 reply to ann's comment
jhigh52

I could not agree more with your comments, HOWEVER, we all fail to understand also the multitude of people of young people who worked only a few years if at all (some are so-called "disabled" in some minute way or another which is almost laughable at times) who have been receiving Social Security for years and with the current system will do so until death. It is a very poorly managed system to say the least. Many of us likely know at least one acquaintance with a relative that stays in trouble with the law and a known drug user, however he/she receives Social Security which stems from knowing exactly how to work the pathetic system....it is indeed a FACT, an extremely frustrating one at that, as I doubt SERIOUSLY if we will ever see any positive change in regards to SAVING Social Security from a true train wreck.

March 24 2012 at 9:30 PM Report abuse +1 rate up rate down Reply