When should you start collecting social security benefits?

Each day, people are retiring by the thousands and most will decide to collect social security benefits as soon as they're eligible. Under current rules, anyone born in 1929 or later and who's paid into the system for at least 40 quarters (ten years of work) is entitled to collect benefits starting at age 62. Recent estimates suggest that over 70% of those who reach that golden age will sign up right away.
For folks who rely heavily on social security to pay the rent and buy the groceries, choices are often limited. But if you're fortunate enough to enjoy greater financial flexibility, you'll want to consider the following questions:

• How's your health? If you don't expect to live into your seventies or eighties, taking social security benefits early probably makes sense. On the other hand, if you expect to live a long life and don't want to run out of money, waiting to apply for benefits may be prudent. That's because social security benefits are substantially reduced for every year you're under "full retirement age." People born between 1943 and 1960 can start collecting full benefits between ages 66 and 67. Folks born after 1960 can collect full benefits at age 67. If you begin receiving social security payments at age 62, your monthly check will be reduced by as much as 30%, depending on your age. Since you'll be collecting benefits for the rest of your life, the long-term difference in payouts may be significant.

• How's your retirement plan doing? If, while waiting to reach full retirement age, you're drawing down retirement savings to cover expenses, you may want to reassess your options. Say you're earning a 5%-8% return on your 401(k) account or IRA. It might make more sense to take social security benefits at age 62, leave your retirement accounts alone, and let compound interest work its magic. The higher the return on your retirement accounts, the more important to let that money grow, even if it means foregoing a higher social security benefit. On the other hand, if your investment portfolio is just keeping pace with inflation and you expect to live until age 95, postponing social security benefits until full retirement age may be the better choice.

Clearly, deciding when to apply for social security benefits isn't a one-size-fits-all proposition. If you need help with this important decision, give us a call.

aconner@atconnercpa.com