When should you take Social Security benefits?
The question of when to take Social Security benefits is worthy of more consideration than it gets.
By Helen Huntley, Times Personal Finance Editor
Published November 11, 2007
The question of when to take Social Security benefits is worthy of more consideration than it gets. Many people simply sign up as soon as they turn 62. Today I’m here to say you should think twice about that. Furthermore, if you are married and plan to stay that way, your coupled status should be a primary consideration as you look at your circumstances.
Often the best bet is for the higher-earning spouse to wait until age 70 to start collecting while the lower-earning spouse starts between 62 and 66. Even if their earnings are relatively equal, it may pay for one to delay benefits while the other starts collecting.
How can that be? It all has to do with Social Security rules and the good chance that at least one-half of a couple will live to a ripe old age. Consider this example of a couple, both age 60: He has about a 20 percent chance of living to 95. She has a 30 percent chance. Together they have about a 35 percent chance that at least one of them will make it.
What that means is that odds are good that as a couple you’ll collect more from Social Security if you forgo some cash in your 60s and 70s in exchange for more in your 70s, 80s and maybe even 90s. If one of you is from a family with a history of longevity, you should be especially concerned. You want one benefit to be as large as possible because that’s the one that you’ll continue to receive until both spouses have died.
“We need to look under every rock and in every nook and cranny for any extra income we can find,” said Christine Fahlund, senior financial planner for T. Rowe Price. “This is one area where your decision can make a difference. It’s been overlooked because the rules are so complex.”
Here are some of those rules:
• Although you can collect benefits as early as 62, each year you delay up to age 70 will produce a bigger check. The check at 70 may be close to twice as large as the one at 62. The exact amount depends on when you were born and your earnings; you can get a calculation at
www.ssa.gov.
• While both of you are alive, each gets the higher of your own full benefit or half your spouse’s benefit. There’s a penalty for collecting either of them early, but there’s no bonus for waiting past normal retirement age to collect spousal benefits.
• When one dies, the other spouse keeps the higher of the two benefits. A survivor who had not started collecting benefits would have the option of getting a widow’s benefit first, and later switching to her own benefit.
• It is possible to file for benefits at normal retirement age and then suspend them. This allows your spouse to start collecting a spousal benefit while you earn delayed retirement credits.
While the formula of delaying one benefit works well in many circumstances, it’s not for everyone.
If both spouses are in poor health, it probably makes sense to take benefits sooner than later. If one spouse is considerably younger and expects to earn a good benefit based on her earnings, there’s less incentive for the older spouse to put off his benefits.
“It’s highly individualized,” said Oldsmar financial planner Alison Painter. “A good financial planner can run the scenario for a couple and take into account such things as does he have a pension, does she and does it stop when one dies.”
Calculators on the Social Security Web site (www.ssa.gov) allow you to do some analysis.
Delaying benefits does not necessarily mean delaying retirement; it just means using some other source of money to pay retirement expenses. One possibility is IRA withdrawals, a strategy that could result in lower taxes in the long run. Tapping your IRA early in retirement reduces required minimum withdrawals later on when the extra income could increase the taxes on your Social Security benefits.
Painter says there is one group she thinks should take benefits earlier rather than later: people who don’t need the money and have the savvy and risk tolerance to invest it in the stock market.