October 24, 2011

Social Security: Help Me Decide!

A decision everyone faces at some point is when to start receiving monthly Social Security checks. Retirement experts do not agree. The government web site designed to help you also provides no definitive answer. Like so many other decisions involved in navigating the rocky road to a satisfying retirement, you will have to make the final call.

There are several factors to consider: your financial situation without Social Security, your health, other insurance you own like long term care coverage, even your family history in terms of longevity. Disclaimer: I am not a Social Security expert. In fact, I have yet to start getting my checks. I think I have made up my mind but the only thing I know for sure is I won't start at 62 because I passed that mark 6 months ago. So, what I am offering in this post is as much for me as you. If I misstate something, please let me know with a comment or e-mail. This subject confuses even the experts, so we can all learn.

Social Security Basics:

You can start receiving a check at 62. Yes, there are exceptions that allow an earlier start, but I don't want to confuse the subject any more than it already is. You have what is known as a full retirement age, which varies depending on your birth date, somewhere between 65 and 67. You may also delay taking checks until you are 70 to increase the size of the payment. You may wait later than 70, but the size of the monthly checks doesn't increase so there is no reason to do so.

If you take your Social Security payment at 62, you will receive a monthly amount that is between 25-30% less than what you would get at your full retirement age (FRA). For each year you wait past 62 the monthly check goes up approximately 5%. If you wait until 70, your monthly check could be 75% higher than what you'd get at 62.

If you work after starting to collect Social Security and you are younger than your FRA your government check is reduced by $1 for every $2 or $3 (depending on various rules) you earn over an amount set by the government. In a rule only possibly thought up by a large bureaucracy, the money you lose isn't really lost. Starting at you FRA, your checks will be increased to make up for the money taken away during the earlier years. The exact point of this is not clear, it is just the way it is.

Spousal benefits:

Here is where things get a bit more confusing.  If both you and your spouse work, deciding when to start accepting checks takes on a new twist. You might assume it is simple: you get a check for what you are entitled and your spouse gets one to reflect his or her earnings and the age when the checks start.
No. There is a thing called the spousal benefit. If one spouse never worked he or she:

 •can begin collecting the benefits as early as age 62. However, if the benefit begins early, the amount will be permanently reduced by a percentage based on the number of months up to his or her full retirement age.

•can qualify based  on the working spouse's record for Medicare at age 65.

•can receive a benefit equal to one-half of your full retirement amount if they start receiving benefits at their full retirement age.

Wait, there's more. If you are full retirement age, you can apply for retirement benefits and then request to have payments suspended. That way, your spouse can receive a spouse's benefit and you can continue to earn delayed retirement credits until age 70.

If your spouse has reached full retirement age and is eligible for a spouse's benefit and his or her own retirement benefit, he or she has a choice. Your spouse can choose to receive only the spouse's benefit now and delay receiving retirement benefits until a later date. If retirement benefits are delayed, a higher benefit may be received at a later date based on the effect of delayed retirement credits.

And, the fun continues: If your spouse worked and is eligible for retirement benefits on his or her own record Social Security will pay that amount first. But if the benefit on your record is a higher amount, he or she will get a combination of benefits that equals that higher amount (reduced for age). It doesn't matter if your spouse starts getting benefits before, after, or at the same time you do--the government will check both records to make sure your spouse gets the higher amount.

And, finally: If one partner dies, the survivor can claim the deceased spouse’s check instead of his or her own, assuming the dead spouse’s check is bigger.

It is easy to see why this is not a simple decision, and I have left out several exemptions, clarifications, and exclusions that would only make your eyes glaze over. So, how does one decide when to take the checks? Various folks who make a living at unscrambling this stuff suggest:

If you’re still working, don’t claim benefits before your full retirement age.

If you delay taking your check until you turn 70, the break even point is roughly 6-8 years before you get back the money you didn't take in the earlier years.

 Consider your family genes and general health. How long do you think you will live?
You are better off to delay taking the checks unless you need to money to make ends meet or....

You have a solid retirement fund and the Social Security money would allow you to live a more enjoyable life by indulging in the extras of life: travel and vacations, giving money to your children or grandkids, helping a parent.

By now I assume you have figured out why the answer when to start taking Social Security is so confusing. Let me help a bit. Here is what I think I'm going to do:

Start taking payments at 64. Why? That is when I plan on starting to withdraw money from my retirement account. Social Security checks will allow me to withdraw no more than 4% year year from that account. While not everyone agrees, a 4%  annual withdrawal should mean my retirement money won't run out before I do. It will also give us extra money for what we expect to be substantial medical expenses until my wife is eligible for Medicare.

Without divulging the amount, the monthly Social Security check  is enough money that I'm not comfortable leaving it on the table every year. The difference in the size of the check between 64 and 66 isn't enough to delay the payout.

Betty's Social Security payment, even at her FRA, would be quite small. She will be better off waiting until her full retirement age, at which point she can get the spouse benefit of one-half my monthly amount.

My parent's estate is such that at some point in the future (no rush, Dad!) there will be a distribution sufficient to carry me to at least 100 years old.

I reserve the right to change the above financial plan. But, for the moment it appears to make the most sense for me to continue my satisfying retirement.

So, how about your plans?  Has this post helped you come closer to a decision? If you are already receiving Social Security, at what age did you start? Is it working out the way you thought it would?  Please share your insight, opinions, and ideas.


  1. This is a complex decision. Have you tried the
    calculator at socialsecuritychoices.com? The report I received really opened my eyes as to potential scenarios for us. I wrote about it in my post

  2. Juhli,

    I tried the calculator a few years ago, but not recently. I'll check out your post and give it a spin. Thanks for the heads up.

  3. I will be turning 62 next month. I decided not to take it now because I really don't need it at this time and it is one of the few things that will go up. My father died at 88 and my mother just turned 90. I can't predict how long I'll live-but since I can afford to wait I will. I have not decided when to take it. I think I will wait to take IRA/deferred comp until 70. I will continue to convert as much as I can to my ROTH IRA.
    Only time will tell what my expenses will be. It is a much more complicated choice for a couple. You want to live a comfortable life now-but you don't want to run out of money later. Everyone has to run the numbers and make their best guess about longevity. We also have to pay attention to any changes the government might make.
    I will also use the SS calculator.

  4. Donna,

    The post says I plan on starting to take my checks at 64. But, my wife is arguing that I should wait until 66. I can afford to do so. I just hate leaving that money sitting out there, not knowing what our fearless leaders plan to do in the future. They won't eliminate it, but they could certainly increase the taxes on the payments.

    I will use the calculator, too.

  5. I am in the position of a younger spouse. I am 54and have worked on and off during our marriage. My husband will turn 62 next year.
    Both of our families have longevity. His family, though, usually lives into the early 80's - which in reality is 20 years.
    Right now we are financially fine. We are able to travel and continue hobbies.
    We are choosing to take the decision year by year.
    I am balancing the time I am fairly sure I have with my husband vs my ability to have enough to live on in my own older years ( knowing both parents lived in retirement centers).
    it doesn't worry me like Heath care...but it is a major decision.
    It also begs the question...how much do we really need as long as we have shelter, food and family right now?

  6. Janette,

    I continue to bounce from 64 to 66 as the year I will start. If I had some better idea of what the government was going to do I'd feel more comfortable in deciding. Of course, I still have about 18 months until 64. Maybe by then the answer will be clearer.

  7. I have been down this road and wrote a blog on some of it last year. I finally called Social security and got more of the same answers that you posted. Since I am single, it is very complicated. Then I made my plans. Then I had a heart attack. With that said, now all I have left is social security benefits if I ever get to retire. It is a catch 22 with the healthcare and I am still working. Like you said, it depends on your health too. As for me, I may just say the hec with it, make the jump at 64 yrs. old and hope they do not raise the Medicare age to be able to draw it. I will have some retirement from my job due at that time. You wrote a great blog describing exactly how it is. The ultimate decision as you said, is plan today and see what tomorrow brings. Thank you for posting. I am glad to see that someone agrees with me.

  8. Ann,

    When even the folks at SS have a hard time explaning things you know it is all a bit of a crap shoot. I will watch how things develop and make my best guess.

    Now I need to go check out your blog!

  9. Steve in Los AngelesMon Oct 24, 02:48:00 PM MST

    Hi Bob,

    In all likelihood, I will wait until my 70th birthday to begin Social Security. I started thinking about my Social Security commencement date back in early 2006, so I have been thinking about this matter for quite some time. Fourteen years and four months still is quite a bit of time. However, time, at least on a psychological basis, has a tendency to go by quickly. I also very much am an optimist and have my life well planned out. I also keep in mind that some of my Mom's and Dad's relatives lived well into their 90's.

    I plan to begin Medicare at age 65.

    Of course, all of the above could change if I ever again come down with a serious medical condition and became eligible for Social Security Disability and early Medicare. However, I take one day at a time. I would much more prefer to stay very healthy and begin Social Security retirement (or old age) benefits at the age for maximum benefits and Medicare at age 65.

    With regard to Social Security and Medicare, both programs are federal insurance programs that, for almost all people with earned income, are mandatory (i.e., are required by federal law). The programs are NOT "entitlement" programs as some "politicians" like to call them. Such "politicians" risk political peril by calling either program an "entitlement" program.


  10. Steve,

    One risk for Social Security might involve taxing more of the money. At the moment, most people escape being taxed on social security checks. But, an easy way to raise money would be to lower the threshold. Thus, extra money received by waiting until 70 may be eaten up by increased taxes....just one of the many questions we must ask ourselves.

    I do find it interesting that those most vocal about wanting government to cut back by eliminating whole agencies and programs, never say they will refuse Medicare or Social Security. In fact, I read a few reports recently that some of the loudest voices belong to those who are receiving federal disability and Social Security payments now.

  11. Yes, actually, that was very helpful. I had been thinking I would start at 62, but after reading your article, I think I will wait till FRA. I don't think I will really need the money before that, and so far, knock on wood, I'm in good health. I still have a couple of years before I hit 62, so we'll see. But your article set out all the factors more clearly than anything I've read anywhere else. So a big thank you!

  12. Galen,

    Great! I'm glad this made sense and helped you. I learned a lot just researching the basics for this post.

  13. We noodled back and forth on this, too, since DH turned 65 this year and I'm still working...probably for 7 or 8 years yet. We attended a SS information session and it was every bit as confusing as you say, though I commend you for laying it all out as clearly as humanly possible.

    We used the SS calculator, revisited the decision every six months or so for about three years, and did the math vs. delaying. And we factored in his family's longevity and mine, which is a crapshoot, of course. Phew.

    As you say, we just don't know what to expect from those clowns in Washington, so we decided to go with the "bird in the hand" theory when he hit 65. And (without revealing the amount), it was enough that we wanted to put it in our bank account rather than risk having it disappear.

  14. Hope,

    So I am not crazy or a slow learner..this stuff is confusing! Originally I was going to take checks at 62. But, I don't need to so 64 sounds better. Who knows, maybe 66 (my FRA) will turn out to be the answer.

    I like the idea of taking the checks and investing them or banking them if not needed to live. And, if the last few years have taught me anything, it is the "bird in the hand" argument makes total sense.

  15. I read somewhere that basically social security assumes you will be getting benefits until you are 78 years old and if you decide to start benefits at 62 you are collecting for approximately 25% longer than if you waited to 65. Therefore your benefits are decreased by 25%. The basic decision comes down to the fact that if you have a family history of living beyond 78 then taking it early is detrimental to the overall payout. Otherwise you will actually get more money if you collect early and die before 78.

    So it all comes down to family history.

  16. To your 'loudest voices' point: Currently there is a difference between governing and being governed. In some cases, those governing appear to be making choices in their life as if they also are being governed. And then in some cases, the rules not to apply to them -- there might be a lesson here


  17. RJ,

    Originally, Social Security was established when the average person died in his mid to late 60s. So, a FRA of 65 meant the payments would only continue for a few years at most. Now that the average American lives to be 80, the numbers don't work as well. Those of us hoping to live to 90 are really messing things up!

  18. QrkDrw,

    "Those governing appear to be making choices as if they are also being governed." Very insightful point. When someone is campaigning continuously there is no time left to actually do your job.

  19. People advise us not to gamble with our retirement money. But SS is the biggest gamble of all! How long will you live? How much do you need? Will they change the program? Will they "reform" the tax code?

    Bottom line: I say, start taking it when you need it, but not before, unless you get to 70 and then you might as well.

  20. Only 90?! There are a pair of parents in our family that are currently 93 and 95 -- and they still live at home! The greatest generation, you know.

    Now we are all blessed and they may make it into 100 something. Certainly the tsunami of boomers will be looking into the 90's and even 100's. This might create just a little strain on a system already over-used and abused. As you say, a system that was established when the average person usually died by their late 60's.

    Rhetorical question: what if each taxpayer was able to absolutely control of their individual fund and the money not be spent by politicians under any circumstances


  21. Sightings,

    I wouldn't call SS a gamble. You are guaranteed at least a minimum amount at 62. When you take it is up to you and your circumstances. Unless you die very early, you will get back way more than you ever put into the system, regardless of when you start. To me a gamble is the potential to lose everything you invested. Social Security doesn't fit that description. It is more about making an informed choice.

    The key is to take it when you need it...but how does one define need: to provide basics, or to add extras to your life? Life is meant to be enjoyed. We are not put on earth just to survive.

  22. Bob, here is a web page from SSA

    It basically show that the life expectancy of someone who was 65 in 1930 was 16 years and in 2000 it is 20 now years. In the 1930 the average age of death was 68 as you mentioned but that is because of all the baby deaths that occurred. Most everyone in my/our fathers generation had at least one sibling die before 5 years old.

    So things are not that different from 80 years ago for those of us who manage to get to age 65. My father died at the same age as my grandfather and I expect I will also follow that trend at least within a year or so. That was one of the primary reasons I chose to take SS at 62. I say again it is more a function of genes than anything else. Follow your genes :)

  23. One of the proposed long term fixes for SS is to raise the retirement age two years. So if everyone waited to age 70 to retire/collect then our problems would be mostly solved. But doesn't that prove that waiting is less beneficial to you since it saves the system payouts?

    Just looking at it from a contrariarian point of view.

  24. RJ,

    Good info and excellent point about baby deaths skewing the averages. My "genes" are usually blue but I know what you mean. My family members have tended to hang around well after they have worn out their welcome. I should make 90 or more.

  25. RJ (more),

    Interesting thought about how raising the retirement age sort of proves we should take it earlier. I thought I'd have a better idea of what I should do after this post and all the comments, but I'm even more unsure.

  26. QrkDrw,

    My dad is 87 and is physically still going great. His memory is fading rather quickly, but he is still driving, singing in two choirs, and living in an independent cottage.

    You are right, I may hit the century mark. My only hope is if I lose my mind or become completely bedridden and and a burden to others, I make a rapid and graceful exit.

  27. I don't agree that o will get far more out than I put in.
    Ss got 10% of your salary every year. You pay for 35 years.
    Let's say you put in a modest 3000 a year and the government made an average of 7% interest. That is about 450,000 . Now you start withdrawing 20,000 a year. With no future growth the money goes 22 years. With future interest it goes much longer.
    We put the money in, we deserve to get it out. It is not a negative entitlement. It is our earned and saved money!

  28. Janette,

    Social Security is insurance. Those who call it an entitlement are wrong. The Social Security tax rate is 4.2% for employees. That means the average wage earner is putting in about $1700 a year.

    Few have the same salary for 35 years. Usually the early years are smaller as you advance up the ladder. So, let's assume you end up you average $1200 a year for 35 years. That equals $42,000. You'll get that back in the first two years and then you are actually getting money paid into the system by those still working.

    Even using your optimistic numbers, the total you put in is $105,000, not $450,000. So, after 5 years you will be getting out more than you put in. The reason SS is in trouble is there are too few workers putting in money to pay for those drawing benefits.

  29. Those of us who work for someone else has the employer contribution of 6.4% as well. That jacks it up quite a bit. My husband's average was the 30,000 that is what I started with. If you take my lawyer brother in law- his was much more like 60,000. It is way more money than most people calculate when you include average (not current) interest.
    I wonder if that effects the self employed.

  30. Janette,

    You've helped highlight the complexity of the issue. Thanks!

  31. Bob

    I wonder if any of your older readers (meaning in their 70's and 80's) could help me with something. I am nearly 60 and planning to work for another 2 to 6 years or so. I've drawn up a retirement budget which seems right for the second half of my 60's (travel, golf, eating out, etc) and then adds inflation to those numbers right up to age 90.

    My question is: what are your readers' experiences with spending in their late 70's or 80's vs. in their 60's? Are there many things they did in their 60's that they just don't care to do any more?

    I completely get the Health thing. Clearly if my health declines I won't be able to do these things as much. But I'm talking about Wants. Does the interest in these things decline soon after retirement?

    If I really thought that many optional "wants" were to decline, I might be able to retire earlier!

  32. Jim,

    Excellent question. Let's see what folks have to say. I'll add my two cents worth, too.

  33. So here I go again trying to read and make the decision. Thank you for the post. I will be 63 this Dec. so retiring has to wait now a little longer. It makes me wonder what else will change before my decision and time is right for that thing called retirement.

  34. WorkingBoomer,

    Things change all the time. That's what makes it so tough. I'm still sticking with 64 as my target date, but something may change in the next 18 months.

  35. My husband and I were advised by our accountant to take the SS money as early as possible, (age 62 for me and age 66 for him, as he was still working), and invest it. Over time it would earn at least the amount it was reduced by our taking it early, and quite possibly it would gain more than that depending on what we invested it in. We followed his advice and invested the money in our farm. We painted our barn, installed new fencing, built a new chimney and installed a wood-burning stove in our farmhouse kitchen, put in new concrete patios, built a new gazebo at the edge of our pond. Over the last few years since we've been doing this, the cost of building materials and contractor's labor costs have gone up quite a bit. I think we made a good choice in where we chose to invest our SS dollars. They are investments that have increased the worth of our property and enhanced our lives, and we can continue to enjoy them on a daily basis as long as we both shall live.

  36. Max,

    Thank you very much for adding your story. Having an accountant advise you take SS early and invest the money in your property and lifestyle is an approach I haven't heard before, but it is working well for you.

    Suddenly my mind is playing with a similar scenario (minus the farm) for me.

  37. Based on the figures SS gives us, it makes sense to take at 67 (our full retirement age). Waiting until 70 may be tricky for us, as our retirement accounts may not be enough. I'm more concerned about the cost of healthcare than anything else. My husband and I probably will not retire until our mid 60's in any event.

  38. Sharon,

    I'm worried about the effect on my retirement fund waiting until 70. If I take out what we need annually I lose the effects of compounding on the larger amount in the account which will shorten the number of years it will last.

    I'm starting to lean more toward the idea that Marx mentioned above: use the money as an investment and a way to enjoy some of the things we'd like to do while we are still able.

    Didn't you just celebrate your 50th birthday? You've got plenty of time to really execute your plans.

  39. Bob... some of the other things we've invested our SS money in over the recent past are alternative energy systems. We've always been proponents of wind and solar power, (we were the first farm to co-generate on the GPU grid back in 1978). More recently we've added more solar pv panels to our array and installed a solar evac-tube hot water heating system. These investments bring immediate reduction in energy bills and will pay for themselves within 5 years at today's electric rates. We believe there are better investments for $$ than in today's fluctuating markets. Think hardware!! ... Max

  40. Max,

    First of all, your blog looks interesting. I'll start checking it out on a regular basis.


    I'm disappointed to learn of the high profile solar companies that have given the industry a bad name by taking government money and then going bankrupt. Prices still need to come down and the technology evolve before solar is a mass appeal item, but it will happen.

  41. All of these additional comments have really made me think-I had also thought of taking the benefits early and investing the money. I also checked the SS calculator and my benefits are substantially more at 70. So for now, I will pay attention to any changes in benefits and taxes and postpone taking SS to a future date.

  42. Donna,

    I know my check would be at least $1,000 higher at age 70, though I'm still leaning toward starting at 64 for various reasons. WE will see!

    This post has generated a tremendous number of comments, all with perspectives to consider.