When should you start receiving Social Security retirement benefits?

Baby boomers are set to retire in the next 20 years, and most will rely on Social Security as a source of retirement income. As you approach retirement, when to claim your Social Security retirement benefit is one of the biggest financial decisions you’ll need to make. Should you begin receiving benefits at your full retirement age--which is 66 to 67, depending on your year of birth? Should you begin receiving a smaller monthly benefit before your full retirement age, as early as age 62? Or, should you wait past full retirement age to receive a larger monthly benefit? You can delay receiving benefits up to age 70.

As important as your decision is, there’s no one-size-fits-all answer. It’s a personal decision that must be made based on your unique circumstances. If you have other sources of retirement income or you want to continue working, you’ll want to take the time to make an informed, well-reasoned decision.

Once you apply, your retirement benefit will be locked in for the remainder of your life, in most circumstances (not counting annual inflation adjustments or recalculations to account for additional work), so taking time to explore your options can help you make sure you have enough retirement income later. The timing of benefits can also affect your spouse, because he or she may be entitled to receive spousal retirement benefits and survivor’s benefits based on the amount you receive.

When you become eligible for benefits at age 62, the Social Security Administration calculates your full retirement benefit. Your highest 35 years of earnings are indexed to adjust for inflation, then averaged. A formula is applied to determine what’s called your full retirement benefit. If you retire at full retirement age, you will receive 100% of this amount. If you begin receiving your retirement benefit earlier, your benefit will be reduced by a certain percentage for each month you receive benefits early.

If your full retirement age is 66, this equates to a 25% benefit reduction at age 62; if  your full retirement age is 67, it’s a 30% reduction. Let’s say your full retirement age is 66, and you decide to apply for benefits at age 62. An $1,800 monthly benefit taken at age 66 will be reduced by 25%--to $1,350--if taken at age 62. If you delay receiving benefits, you’ll receive delayed retirement credits that will permanently increase your benefit.

Your benefit will increase for each month you delay receiving benefits--or 8% per year--past your full retirement age, up until age 70. If your full retirement age is 66 and you decide to delay receiving benefits until age 70, your benefit at age 70 will be 32% more than at age 66. For each year you delay, an $1,800 monthly benefit taken at age 66 will increase by $144 per month, and will be worth $2,376 if taken at age 70 instead of at age 66. The monthly benefit of $2,376 at age 70 is 76% more than the monthly benefit of $1,350 taken at age 62--a big increase.

How long will retirement last? There’s no way to know for sure, but retirement may last longer than you think. It’s better to be prepared. According to recent National Vital Statistics Report data, on average, a man who reaches age 65 today can expect to live until approximately age 83. A woman who reaches age 65 can expect to live until approximately age 85. According to Social Security, about one out of every four retirees will live past age 90, with one out of every 10 living past age 95, so you may want to plan for this maximum lifespan to reduce the risk that you’ll live longer than you expect and simply run out of money.

As you near age 62, you should contact the Social Security Administration to discuss your options. Representatives are not allowed to give you advice about when to start your benefits, but they will be happy to explain your options and the rules that apply. The closer to retirement you get, visit with your financial advisor to review your assets, retirement distribution strategies and social security.

Retirement can be an exciting time, but it comes with financial challenges. When you’re ready to make decisions about your Social Security benefits, take time to explore your options.

by Kathy Williams, Financial Columnist

The Gayly – July 14, 2014 @ 11am