Investing Capital

When can be the right time that an older American should start collecting Social Security retirement benefits? The question appears easy, but the answer is complex.

A lot of individuals can start receiving Social Security retirement benefits as early as age 62, before the full retirement age. But the amount of their monthly payment is lessened — the trade off for the longer period over which benefits are paid.

If they were born before 1938, Older Americans can also select to begin collecting full monthly payments at age 65. The full retirement age is higher for everyone else: if you were born between 1938 and 1959, your full retirement age goes higher by percentages of years according to a Social Security age chart; and if you were born in 1960 or later, your full retirement age is 67.

To qualify for a delayed retirement credit, some seniors may delay collecting their retirement benefits until age 70. The amount of their monthly payments will increase as much as 8 percent for each year beyond the senior’s full retirement age. (Unless the covered worker’s spouse requires benefits to meet living expenses, most experts agree there’s almost no any reason to wait until age 70 to take benefits.)

Gladys, for instance, turned 62 in 2003. Based on her lifetime earnings, she’s eligible for a monthly benefit of $1,444. Her payment is $1,931 a month at her full retirement age of 65. Gladys gets $2,697 a month if she delays her benefits until age 70, (figures are supplied by the Social Security Administration; cost-of-living adjustments are added for 2004 and beyond.)

Because every alternative – early, full or delayed — eventually pays out roughly equal total amounts, it may seem the easy alternative is to just take the money and run. Six out of 10 retirees indeed choose early benefits. (depending however on when a person is born, the monthly payment will be 20 to 30 percent lower than what would have been received by waiting until full retirement age comes.)

The amount of monthly income for a lot of seniors that they have to live on is decisive. Seniors should think about several things before deciding when to begin collecting Social Security retirement benefits:

o How is my health? While nobody can outlive Social Security benefits, taking them early may inflict regret if a senior live long enough. The better one’s health and the longer one’s life expectancy, the smarter it may be not to take benefits early.

o What are my other investments? The money that is already held in retirement accounts can keep growing, tax deferred, for someone who can afford instead to live on Social Security benefits.

o Am I married? The necessities of a retiree’s spouse may be significant if he or she is much younger and likely to collect survivor’s benefits for many years, and if he or she was not in the paid labor force: the working spouse’s Social Security benefits could signify the lion’s share of his or her retirement income. When a person receiving retirement benefits passed away, the surviving spouse receives the larger of two amounts – his or her own benefit, or a percentage of the deceased spouse’s benefit (but cannot be both).

o How long shall I work? Employers frequently offer health care and other benefits that otherwise cost individuals a lot. Collecting Social Security benefits early makes little sense for working seniors, particularly if they have earnings from many sources. That’s because, until a working beneficiary reaches age 65, total Social Security retirement benefits are lessened, based on earnings above a ceiling that is adjusted annually.

When to decide for Social Security retirement benefits may be among the more crucial financial decisions an individual can decide in his lifetime. Having to consult with a trustworthy financial planner to learn the consequences of the different choices may be the best decision you can ever make.