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Pros and Cons of taking Social Security Early

{ Posted on Sep 18 2010 by Marcus Alston }

With the current economy still quite anemic, including high unemployment and lower wages, consumers are electing to take Social Security benefits in record numbers, with many of them being early filers.  In 2009, a record 2.74 million people filed for Social Security benefits.  The earliest you can elect to receive Social Security benefits is age 62, with 65 to 67 being the “non-early” age.

Full-retirement age had been 65 for many years. Beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born after 1959.  Currently, the full retirement age is 66. Full retirement age will increase by two months each year beginning in 2017 until it reaches 67 in 2022.

Pros of taking Social Security early.

  • You collect benefits earlier and for a longer period of time.

Cons of taking Social Security early.

  • If you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them.  Normally, if you take Social Security benefits at age 62, your benefits will be reduced by up to 25% for the rest of your life (see chart at the Social Security Web site for details).  But remember, you will start to receive benefit checks 4 years earlier than if you waited until age 66.

Good reasons to take Social Security early.

  • If you are ill and expect to die within the next few years (or within about 15 years or less after your 62 birthday), taking benefits at 62 makes more economic sense than waiting until 66.
  • You are unemployed, work part-time and do not trigger the earnings test threshold, or otherwise need the money to make ends meet.

Good reasons to take Social Security at full retirement or later.

  • If you wait, you will receive a larger monthly payment which could be worth more to you in the long run if you live long enough.
  • You are in good health and expect to live 12 years or more past the date of full social security retirement age.
  • If you plan to continue working full-time, it probably pays to wait, because you may be penalized by the earnings test.  The earnings test does not apply at full retirement age.
  • You do not need the money early to make ends meet.

The MathThe Break Even Point.  If you begin receiving benefits three years or less before your full retirement age, the break-even point will be about 15 years (180 months) after you begin receiving benefits.

Repayment of Early Social Security Benefits Option to Get Higher Benefits:  If you have already signed up for Social Security early and received a reduced payout, you can pay back the entire amount you have already received from Social Security without interest, and qualify for higher payments for the rest of your life.  It is kind of like a re-set or do-over.

Maximum Benefit.  The maximum benefit depends on the age at which a worker chooses to retire. Assuming you retire at 66, the amount for 2009 for a person was $2,323.  If you wait until after 66, your benefits are increased by a percentage.

Conclusion.  In general, taking Social Security benefits early, on-time or late will give consumers about the same total Social Security benefits over their  lifetimes—it’s statistically designed this way. If you retire early, your monthly benefit will be smaller to account for the longer period you will receive them. If you retire at retirement age or later, you will receive a larger amount to account for the shorter time you will receive them.  Each person’s actual situation will be different (single, married, survivor benefits, low income spouse, etc. are factors to consider) and you should consult your financial advisor and or accountant for advice and other factors that may help you decide if receiving Social Security benefits early is a wise financial decision.

Personally, I would take the benefits at the earliest point (62) given you will be financially ahead for the first 15 years from when you start receiving your benefits early.  Tomorrow is not promised.  Who is to say you will live to your break even point.  Additionally, you have the time to enjoy the money and hopefully put it to go use.

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