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.
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.