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Now that we’ve covered the act that protects your retirement pensions and how much you need for retirement, we have one thing left; when the best time is to start receiving those funds.
When planning for retirement, would-be retirees are always faced with the important choice of when to start receiving their Social Security benefits. Is it better to go ahead and get your hands on the money as soon as possible, so that you can perhaps invest it more aggressively and make those benefits grow? Should you try to take your Social Security ASAP, before Congress threatens to shrink your benefits or eliminate the Social Security program altogether? Why not take a dollar today instead of putting it off for another five or 10 years on the promise of a dollar and a half? After all, we grow up hearing adages like “a bird in the hand is worth two in the bush.”
Then again, if you postpone the process and wait until you are older, the amount of your monthly benefits will be considerably larger-that’s a pretty attractive proposition, too. In fact, there is the very real possibility that delaying Social Security will boost your payout a whole lot more than you could achieve on your own by taking smaller payments now. You’d have to get a sizeable return on your investment to beat the growth that you’ll automatically receive by just waiting – especially considering how unpredictable the stock market can be. Don’t forget the sluggish economy, either, and the low rate of interest currently offered on financial instruments such as money market funds, CDs, Treasury bills, and corporate or municipal bonds.
No matter how you slice it, the choice is not a simple or easy one to make. That’s why it should come as no surprise that many financial experts believe that the timing of Social Security benefits is the toughest retirement planning decision of all.
The Value of Waiting
Let’s look at a simple illustration of how it works across a timeline:
- “Full retirement” age, as defined by the Social Security program, is between 65 and 67, depending upon when you were born.
- For the sake of our example, let’s assume a full retirement age of 66 with monthly benefits at that age of $1,000.
- If you choose to instead take your benefits early at age 62, the payment amount will be reduced 25% to $750.
- Hold out until age 70 to receive the maximum possible and your monthly payments will go up to $1,320 – which is 76% higher than $750!
As you can see from this example, you can expect rather robust growth in the size of your benefits every year you wait. Social Security payments are adjusted for inflation once you begin to receive them, too, which can give you added protection late in life – at a time when financial security may be critically important.
Retirees Can Still Work and Earn
Some Americans are under the misconception that once you start receiving Social Security benefits you can no longer work, but that’s not true at all. After reaching full retirement age you can work and earn as much as you want.
For those who are younger than full retirement age and are already taking their benefits, however, it works a little differently. If their earnings exceed a certain level then some of their benefits may be withheld. The upside is that once they do reach full retirement age their monthly benefits are recalculated and will be higher to match that adjustment.
The math can be somewhat complicated, depending on a variety of factors, but in the end, the intent behind the Social Security program is to level the playing field. They do that by structuring benefit levels so that regardless of when you start taking out your money, you will likely wind up receiving approximately the same total amount – as long as you live the average lifespan.
In a nutshell, the design of Social Security policy comes down to this: You can start early, receive less, and live longer to receive a greater number of monthly checks. Or you can begin receiving the benefits later in life and enjoy bigger monthly checks for a shorter time period since you are closer to the end of life.
Other Helpful Information
There is one other thing you should do if you decide that you are going to delay the receipt of your Social Security benefits. At least three or four months before you reach age 65, go ahead and sign up for Medicare. That way you won’t trigger any inadvertent delays in Medicare coverage and won’t run the risk of being charged higher Medicare premiums.
To estimate your Social Security benefits, visit the Social Security Administration’s website where you will also find a handy online retirement estimator tool. You can also go online to order a copy of your Social Security statement, which will give you an up-to-date summary of your retirement benefit estimates.