2007-03-14 / Seniors

Social Security: When To Start Your Benefits

Dear Savvy Senior,

Can you give me some tips on when the best time is to start taking my Social Security benefits?

Ready to Retire

Dear Ready:

Figuring out the best time to start taking your Social Security retirement benefits can be tricky. A good first step in getting help is at your local Social Security office. Call 800-722-1213 and schedule an appointment with a claims representative. You can also find lots of helpful information online at www.socialsecurity. gov. When you get there, click on "Plan your retirement". In the meantime, here are some things to think about.

Basic Rules

You can start receiving Social Security retirement benefits any time between the ages of 62 and 70. Remember that full retirement age (FRA) is now between 65 and 67, depending on the year you were born. If you decide to take benefits before reaching your FRA (as most retirees do), your monthly check will be permanently reduced. How much will depend on how early you start. To find out your full retirement age and early retirement reductions, see www.ssa.gov/retirechartred.htm. You also have the option of delaying your benefits beyond FRA, which would earn you increased benefits, up to age 70.

Social Security has an online tool that can help you decide whether to start your benefits early or wait until later. At www.ssa.gov/retire2/breakeven.htm you can calculate your "break-even" point, which is the age- if you live that long- you would have been better off waiting and taking the larger check.

Other Factors to Consider

There are other factors beyond the "break-even" point you'll need to consider before you make any decisions, such as:

+ Financial need: If you need the money to help pay for your basic living expenses, you probably should start claiming benefits as soon as possible. On the other hand, if you don't need your benefits immediately, you may want to wait.

+ Life expectancy: A key factor in deciding when to start drawing your benefits is how long you'll live. So, how's your health and what's your family's longevity history? If you're in poor health, you're probably better off claiming early benefits, but if good health and longevity are on your side, waiting may be a smarter move. Check your life expectancy at www.livingto100.com.

+ Work: If your retirement includes full or part-time work (depending on what you earn), taking early benefits is probably not a wise option. That's because if you start collecting your Social Security benefits before full retirement age, and you earn more than the government's limit ($12,960 for 2007), you will loose $1 in benefits for every $2 you earn over the limit. And remember, you'll also be taking a reduced benefit for life. In the year you reach full retirement age, a less stringent rule applies. The earnings test claims just $1 for every $3 over the limit. Once you reach your full retirement age, you can earn as much as you want without penalty. To help you understand this better, see www.ssa.gov/pubs/10069.html.

+ Investments: If you don't need the money, and plan on saving your benefits, you may be able to earn more by reinvesting than you lose by taking reduced benefits. Another consideration is the money you already have in your retirement accounts. It may be advantageous to draw early benefits to live on, which would enable you to reduce withdrawals from your tax-deferred retirement savings, letting them grow. You'll need to do some calculations to compare scenarios. A financial professional may come in handy here.

+ Taxes: Social Security benefits are taxable, depending on your income level. To figure this out, add up all of your taxable income, plus any tax exempt interest you earned, plus half of your Social Security. If these combined amounts are over the required limits ($25,000 if you file as a single, and $32,000 if you file a joint return), then you'll pay tax on up to 50 percent of your benefits, a level that rises to 85 percent at higher incomes. If you fit into this category, you may want to wait.

+ Spouse: If you were your family's main bread winner, and your spouse's life expectancy is longer than yours, you may want to delay your benefits to ensure a larger survivor's benefit for your spouse after you're gone.

Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit www.savvysenior.org. Jim Miller is a contributor to the "NBC Today Show" and author of The Savvy Senior books.

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