Now that the Baby Boomers have begun reaching retirement age, one key decision is looming for them—when to claim Social Security benefits. And that choice is as complicated and varied as the individuals making it.
Social Security? Yes, if you’re a member of the Boomer generation, there will be Social Security benefits for you when you retire, despite talk of deficits and under-funding.
Your ‘full retirement age,’ as defined by the Social Security Administration (SSA), varies depending on when you were born. For example, if you were born in 1937 or earlier, your full retirement age is 65 — the age at which you receive full Social Security benefits. You can retire as early as age 62, but your monthly retirement benefit will be permanently reduced.
On the other hand, you can choose to delay your benefits and retire as late as age 70, which will increase the amount of your monthly retirement benefits.
Generally, the sooner you begin taking Social Security benefits, the less you will receive each month. For most people who are in good health, it makes sense to wait until age 70 before taking benefits. But your health is just one of many factors. Here are some things to think about when deciding when to take Social Security.
How long will you live?
OK, no one really knows the answer to this, but it’s worth thinking about probabilities. Do you have a chronic illness that could affect your life expectancy? If so, you may want to retire and take benefits early. On the flip side … does your family have a history of longevity? If so, you might wait to start your benefits until full retirement age or later.
Are you married?
Here is where the decision can get complex. You need to take your spouse’s age and health status into account. Many couples time their retirement to maximize the monthly benefit by exercising what’s known as the 62/70 split. Put simply, the lower-earning spouse files early at age 62 based on his or her own Social Security benefit. The higher-earning spouse files at his or her full retirement age and suspends benefits until age 70. This improves the spouse’s benefit and allows the higher-earner to improve his or her own benefit when they begin drawing later.
Do you plan to work while receiving benefits?
If you take Social Security benefits before your normal retirement age, continuing to work may lead to reduced benefits. Once you reach the annual income limit ($14,160 in 2010), benefits are reduced by $1 for every $2 you earn above the limit. Then, when you hit your normal retirement age, the formula changes to $1 benefit reduction for every $3 earned beyond a higher limit ($37,680 in 2010). Another thing to consider is that depending on your modified adjusted gross income (MAGI), Social Security benefits can become subject to income tax.
For most Americans, Social Security is just one piece of their retirement plan. But being smart about your benefits can make your retirement more comfortable and allow you to enjoy the lifestyle you’ve worked to secure.
To learn how to maximize your benefits, seek the advice of a professional who specializes in retirement planning. The Social Security Administration’s Website also has resources at www.ssa.gov.