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When Should You Take Social Security?

The decision on when to begin taking your Social Security benefits is one that carries significant consequences, especially in your later years. Here are some of the basic parameters.

Recipients are eligible for what is known as their “primary insurance amount” at their full retirement age. If you were born between 1943 and 1954, your full retirement age is 66. (For those born earlier than 1943, full retirement age is slightly earlier; for those born in 1955 and later, it’s a little older – age 67 for those born in 1960, for example.)

You can take your monthly benefits as early as age 62, but they will be 25% below that of your primary insurance amount for as long as you receive them. If you plan to work part time in retirement, it may be a better idea to wait and take your benefits later, at full retirement age, or at age 70, when the benefits are maximized. Taking benefits before your full retirement age means Social Security will reduce your benefits by $1 for every $2 you earn over a set limit. For 2011 that limit is $14,160, so if you made $24,160 ($10,000 more than the limit), your benefits would be reduced by $5,000. At your full retirement age, the earnings limit goes away – you can receive your primary insurance amount regardless of how much you make.

Your annual benefits rise by about 8% (inflation adjusted) for every year you wait past your full retirement age. Your payout reaches its maximum amount at age 70, and you must begin taking your benefits at that point. Your benefit amount is based on your highest 35 years of earnings, so if you’re still in your peak earnings years, working longer will mean larger payouts later on because you are adding high-income years to the 35-year formula.

Although it can be tempting to take your benefits as early as possible – especially if doing so helps you begin retirement – you want to think carefully about the consequences of that choice. Social Security provides a guaranteed lifetime income, adjusted annually for inflation, which can be very valuable in your later years. In other words, rather than approaching the decision essentially by asking, “What if I die and didn’t get my money when I could have?” you may instead want to ask, “What if I live to be 80 or 90? What is my income going to be and where will it come from?” No one wants to come up short in their later years, so when you look at it this way, the benefits of waiting and letting your payout reach its maximum become more apparent.

Every individual’s financial situation is unique, and there are several other factors – including spousal benefits – to consider in deciding when to begin taking your benefits. Be sure to think about your total retirement picture and get expert advice before making any final decisions.

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