Wednesday, April 25, 2012

When should you take Social Security?

CBS News:

Jack Otter

(MoneyWatch) When should you take Social Security? ... For most people, the answer is straightforward, if not popular: As late as you can, the closer to age 70 the better.
The reason is simple: The longer you wait, the higher the payout. Granted, this advice is useless if you can't afford to wait. But if you have any flexibility at all, it's important to consider the numbers. ...
If you are making $75,000 and you retire this year at age 62, your annual Social Security payout would be about $16,300 (that number will vary depending on your earnings over your lifetime). If you wait until your full retirement age of 66, your Social Security income in 2016 will be around $22,600. If you can hold out until age 70, expect to bring in more than $30,000.
This is a chart illustrating the future payout...
This is a chart illustrating the future payouts of Social Security Benefits in the US from 2009-2083. The source of the information is the Social Security Administration's website. (Photo credit: Wikipedia)
Some people prefer a bird in hand, and they argue that you're better off taking the checks at age 62 and investing the money. Here's the problem: You would have to earn around 8 percent a year on your Social Security checks to match that payout. There's no investment in the world that pays 8 percent a year without a lot of risk. Despite all the fear over Social Security funding levels, the program has a U.S. government guarantee behind it, and even if you're skeptical of the Treasury, it's far safer than junk bonds that yield 8 percent.
Social Security general benefit increases in t...
Social Security general benefit increases in the USA. (Photo credit: Wikipedia)
Holding out for bigger checks becomes more valuable the longer you live. Using the numbers above, if you live to age 90 you'll get $170,000 more in Social Security by waiting until age 70 to take benefits. ...The bigger your checks, the higher the dollar amount of any cost-of-living adjustments. Unless you're in ill health (and therefore may not live long enough to benefit) or simply can't affordnot to take Social Security early, it's a no brainer.
The broader lesson here is what led to the name of my book: Worth It...Not Worth It: Simple & Profitable Answers to Life's Tough Financial Questions. While managing money is never easy, the answers to many of the questions we face are fairly simple, once you see the numbers. The same is true for life insurance, investing, and even whether to use your credit or debit card. 
© 2012 CBS Interactive Inc.. All Rights Reserved.
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  2. I concur with Jack Otter’s concise explanation and agree that waiting is usually the best strategy but there doesn’t have to be an either/or scenario. Today’s eligible Social Security collector can consider using the “double dipping” strategy. A very large group of today’s Baby Boomers were yesterday’s DINKs (Duel Income No Kids). Well, part of that may have changed, the kids eventually did come along but the bigger concept remains; there are two income earners, ergo, two Social Security retirement-benefit recipients. One or both wage earner(s) can restrict (not take) their benefit(s) when they reach FRA and receive their spousal benefit (50% of their spouse's PIA) while still earning an income AND working toward that extra 32% benefit increase at age 70.