Social Security: Take The Check Now Or Later?

Social Security: Take The Check Now Or Later? When you become eligible for early Social Security benefits at age 62 you must decide among taking a monthly Social Security benefit check of, for example, $1,450 at age 62, $1,913 at age 65 and 4 months, or $2,538 at age 70. Let's look at the factors involved in this decision. First, consider these Social Security retirement benefit basics. Qualifying individuals become eligible for early reduced benefits at age 62. The age to collect full retirement benefits is currently 65 and 8 months (Full Retirement Age or "FRA") and it is on a schedule to increase to age 67 for those born after 1960. If you wait to begin your monthly checks until age 70, you may derive the maximum benefit. Also, if you have reached your FRA you may have unlimited earned income without triggering a reduction in Social Security benefits. If you will be under your FRA throughout 200+, your benefit will be reduced by $1 for every $2 of earned income over $12,480. If you will attain your FRA in 2006, your benefit will be reduced by $1 for every $3 of earned income over $33,240 earned before the first day of the month in which you attain your FRA. Those eligible for Social Security retirement benefits may want to strongly consider taking the money now, rather than waiting. Although some people in the highest income-tax bracket or with a family history of longevity may find reasons to wait for the larger payment, for most retirees the decision is a simple question of mortality statistics. On average, Americans live into their early or mid-80s. Calculations show that a 65-year-old who waits five years to begin taking maximum Social Security payments won't recoup the forgone money until he or she approaches age 85. Here's how the math works. Assume you attain age 65 in 2006 and that you are eligible for the maximum monthly Social Security check. You are now eligible to receive monthly payments of $2,053, or $24,636 per year. If you defer taking payments until you attain age 70, you would earn a retirement benefit credit that amounts to an increase of 7% a year. So by deferring payment, your monthly income jumps to about $2,720, or slightly more than $32,640 a year - roughly a 33% increase. But deferring payments means you would forgo $123,180 you would have received before age 70, during the wait. And while monthly income does increase by $667 at age 70, it would take you nearly 14 years to collect the delayed money. But, around age 83 and four months, you come out ahead in total benefits received. The calculations get a bit more complicated when you elect to take reduced benefits at age 62, especially if you are still working; because, Social Security will reduce your benefit if your earned income exceeds $12,480 (for 2006). For example, if you are a 62-year-old top earner retiring this year, you will receive monthly income of approximately $1,522, which is 75% of what you would get by waiting until your FRA to begin taking payments. Assume your benefits are due to begin in January and you continue to work part-time and earn $30,000 throughout the year. Your annual benefit will be reduced by $8,760 ($30,000 - $12,480