Whether your retirement is off in the distance or just over the horizon, you will eventually have to decide when to start drawing your Social Security benefits. That decision will have a significant effect on your financial future. The more you know about your options, the better your chance for making the decision that is right for you.
The importance of timing
You may begin drawing Social Security as early as age 62, but the longer you wait, up to age 70, the higher your monthly payments will be. Your full retirement age (FRA) is the point at which you may receive the full Social Security benefit.
There are some things you should take into consideration.
Life expectancy is a factor. If you delay signing up for benefits beyond your earliest eligibility, you’ll receive fewer checks over your lifetime, but your checks will be larger. So, if you’re fortunate enough to enjoy many years of retirement, you’ll have lots of time for those larger checks to make up for the payments you missed by delaying benefits.
For help in determining when to start receiving retirement benefits, log on to the Social Security Administration’s Web site at www.ssa.gov/pubs/10147.html.
Your need for current income will also be a factor in deciding when to take benefits. If cash flow is such that you will need help in meeting current expenses when you retire, then signing up for benefits at the earliest time possible may be your best choice.
However, if your financial situation is strong enough at retirement to meet expenses without the help of a Social Security check, you may want to delay receiving benefits in order to maximize your eventual monthly payments.
Work after retirement
The definition of retirement is rapidly changing these days. For many Americans, “retirement” means leaving a primary occupation in order to embark on a part-time or full-time secondary career.
If you decide to start drawing Social Security benefits before you reach your FRA (the Social Security Administration reports that approximately 73 percent of retired worker beneficiaries elect to begin collecting Social Security benefits before their full retirement age), every two dollars you earn above an annual limit ($14,160 in 2009) will reduce your monthly benefit check by $1.
In the year you reach your FRA, $1 in benefits will be deducted for each $3 you earn above a different limit, but only counting earnings before the month you reach FRA. For 2009, this limit is $37,680.
Starting with the month you reach FRA, you will get your benefits with no limit on your earnings.
Whether it will benefit you to continue working after you begin drawing benefits is a complex question involving many variables. Your accountant or tax advisor can help you to decide. For more information on this, log on to www.nysscpa.org.
How dependable is the system?
Despite rumors to the contrary, there are no plans to cut benefits for people close to or currently in retirement. Social Security’s financial problems are very real, but they are long-term. Most estimates suggest that changes must be made by 2040 in order to avoid cuts in payments.
The major problems that need to be addressed over the long-term are the aging baby boomer population, increasing life expectancy, and a lowering of the worker-to-beneficiary ratio.
The author is a freelance writer based in Abington, Pa., with 40 years experience in business management and financing.
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