Tips To Determine When To Start Collecting Social Security Income

The rumors that Social Security is going to run out of money are unsettling. None of us want to believe that, after years and years of seeing deductions come out of our gross paychecks, there will not be enough money left to take care of us in our retirement.

When our annual Social Security benefit reports come in the mail, there are three estimated monthly payments provided. The first is the amount we can expect to receive if we retire "early" at age 62. The second shows our monthly payment at the "normal retirement age" of 66. The last shows us our anticipated income if we delay retirement a little longer to age 70.

The longer we wait, the greater the monthly payment. In fact, the increase in the payout averages about 8% per year that is delayed. So, waiting four years will result in a 32% increase in the monthly payment. But, how do we decide which option would work best for us and our household? Here are some issues to consider before deciding.

Reasons to collect now

Some retirees simply need the income. For any of a number of reasons, they are no longer able to work, and the funds available in savings are just not enough.

Those whose retirement accounts were heavily affected by the recent market drops may want to slow down on withdrawals from those accounts so that they can give them time to grow.

Family history of longevity may also be considered. If a retiree does not expect to live long in retirement, it may not make sense to wait.

For example, if a 66-year-old retiree collects $1,500 a month now, that is the equivalent of $18,000 per year. A four-year delay means that the retiree is giving up a total of $72,000 in retirement income.

If the retiree decided to wait four years until age 70, the monthly payment would be $2,000 per month, or $24,000 per year. In order to break even, it will take 12 years for that additional $6,000 a year to make up for not starting the payments earlier.

Waiting will not make sense if the retiree thinks that there is a high probability of not living to age 82.

Reasons to collect later

Since the majority of the Social Security payment is taxable when a retiree is still working, it may be better to delay collecting those payments. Each household would need to review their situation individually to truly understand the potential impact.

It may also make sense to wait if there is enough savings to draw on for retirement expenses, especially if the funds on hand are earning less than 8% per year. In years where Social Security makes a cost of living adjustment, that 8% could jump to a 10% or 11% gain.

Married couples may also benefit. If the surviving spouse has a chance of living a long retirement, the widow may continue to receive the spouse's Social Security payment for life. This additional source of income can help ensure that he or she does not run out of money during retirement.

There is no one correct answer on the best time to start collecting Social Security benefits. Each household's circumstances are different. With the help of a financial professional and a tax advisor, we can review the options to determine what makes the most sense for us.

About the Author

Ozeme J. Bonnette is a financial coach, speaker, and author of Get What Belongs to You: A Christian Guide to Managing Your Finances. After working for a top financial services company, she shifted her focus to speaking to groups hoping to increase financial literacy. She earned 3 Bachelor's degrees at Fresno State, and her MBA at UCLA's Anderson School. Her blog is http://www.povertynorriches.com. Reach her at ozeme@thechristianmoneycoach.com.

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