Get ready. The Baby Boomer Generation, that huge demographic born between 1946 and 1964, is starting to retire….or at least thinking about it. Over the coming years millions of Boomers will reach age 62, which is the minimum age to start drawing on social security retirement benefits. If recent history is any indication, most of these people (over 70%) will take their benefits as early as possible.
However, whether you should start collecting benefits at age 62, or “normal” retirement age, or even age 70, depends on several factors. These factors include your overall health and expected life span, your plans to earn income before reaching “normal” retirement age, your anticipated returns on other investments, and even your guess about the future of social security. Obviously, this is not a one-size-fits all decision.
For some, the decision to defer collecting on Social Security is not an option. If your savings and investments will not cover your ongoing living expenses, you may need to rely on social security income to make ends meet.
However, if your financial situation allows for more flexibility, you may opt to defer collecting social security benefits. For each year you delay taking benefits, the payouts increase, up to age 70. Also, if you plan to earn significant income between age 62 and your normal retirement age (age 65 to age 67, depending on the year you were born), putting off your social security benefits may make sense. That’s because any benefits in excess of specified limits ($15,120 in 2013) will be reduced. You will lose $1 of benefits for every $2 in earnings above the limits. You will not lose any social security benefits (regardless of earnings) once you reach your full retirement age. (You can determine your full retirement age by going to the Social Security Administration’s website at http://www.ssa.gov . The site also offers a retirement planner for helping you make your decision.)
On the other hand, let’s say you have accumulated $500,000 in your 401(k) account and expect that account to generate an 8% annual return. Under that scenario, you might be better off leaving your retirement savings alone and taking your social security benefits early to cover living expenses. Or, perhaps your family has a history of health problems and you don’t realistically expect to live into your late 80’s or early 90’s. Maybe taking social security benefits at age 62 might be a good choice.
For married couples, social security has a “file and suspend” option, in which one spouse can apply for retirement benefits and have the payments suspended, while the other spouse applies only for spouse’s benefits. This strategy allows both spouses to delay receiving retirement benefits on their own records so they can get delayed retirement credits. Note: if you want to do this, only one spouse can apply for retirement benefits and have the payments suspended. There are a number of caveats to this option, but it can make sense for some couples.
When it comes to retirement planning, there are no guarantees. When deciding whether to defer social security benefits, take a realistic look at your situation, run the numbers, and spend time perusing the Social Security Administration’s website. It’s full of valuable information, answers many frequently asked questions and includes a retirement planner to help you with your decision.
Happy Retirement!!