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Saturday April 30, 2016

Savvy Living

Savvy Senior

When Does it Pay to Take Social Security Early?

I will turn 62 in a few months and am trying to decide when to start taking my Social Security retirement benefits. Almost everything I read on this topic tells me it's better to wait until my full retirement age or beyond. Is there ever a good reason to start early?

You're right! Most financial planners agree that waiting to take your Social Security retirement benefits is a smart financial move. Why? Because each month you defer, from your 62nd birthday to your 70th, your monthly benefits grow. That adds up to around 6% to 8% higher payments for every year you delay.

Despite the financial incentive to wait, most people (58% of men and 64% of women) claim their benefits before full retirement age, which is currently 66 for those born between 1943 and 1954.

Speeding up the clock isn't always a bad idea. Here are some scenarios where it may make sense for you to collect early.

You need the money: If you're retired and don't have enough savings or a pension to cover your living expenses, you'll probably have to start early. But, if you decide to work, be aware of the earnings test.

If you claim Social Security benefits before full retirement age (and you don't reach 66 this year), you'll forfeit $1 for every $2 you earn over the earnings limit of $15,720 in 2016. It usually doesn't make sense to take benefits early if you're working, unless your income is below the earnings limit.

You have poor health: Having a serious medical problem that is likely to shorten your life is another reason to start your benefits sooner rather than later.

You should consider that the "breakeven point" - the age you need to reach to come out ahead by waiting to claim Social Security - is 78 for someone who claims at 62 versus waiting to 66. If you don't anticipate making it to 78, go ahead and claim early.

However, if you are married or have other dependents at home who depend on your benefit, you may want to hold off because starting early will reduce their survivor's benefits.

You're a lower-earning spouse: If you're married and your lifetime earnings are much lower than your spouse's, you could take your benefit early but your higher-earning spouse should delay. This lets you increase your household income now, while the higher-earning spouse's benefit grows, therefore increasing the survivor benefit.

Skeptical of Social Security: Many people take their retirement benefits early because they fear Social Security will go bankrupt, but this not a good reason to start collecting early.

While it is true that the Social Security trust fund will become insolvent around 2033 - 17 years from now - if no changes are made, that doesn't mean there will be no more money for benefits. It means that the fund is no longer taking in enough money to cover all promised benefits. Thus payment checks are likely to end up shrinking by about 25%.

But, if the thought of losing out on your benefits keeps you up at night, then it may be better to start claiming early instead of holding off for more later.

To see how much your benefits will be affected by your claiming age, use the Consumer Financial Protection Bureau's new Planning for Retirement tool at consumerfinance.gov/retirement/before-you-claim.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Published April 22, 2016

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