Timing Social Security Benefits by Carolyn Flaherty

Many people wonder when they should begin taking their Social Security benefits. Most people believe that they should wait as long as possible before tapping into Social Security so that payments will be higher. However, choosing when to begin collecting is actually more complex than deferring as long as possible. In reality, timing must be analyzed based on the facts and circumstances of each individual including what other assets the individual has, the taxability of the other assets, what income streams can be generated in retirement and how much income the individual requires.

Although it is estimated that those who begin collecting at age 62 reduce their overall Social Security benefits by 20-30%, in some cases it is actually still more beneficial to begin collecting as early as possible.

For example: the lower income earner in a married couple may wish to begin collecting as early as possible. Why collect early? Because when the higher earner passes away, the lower earner’s benefit level becomes irrelevant anyway and they instead obtain survivor benefits that are essentially an inheritance of the higher income earner's benefits.

This can be particularly true for women who have taken time out of the workforce and therefore have lower total career earnings and hence lower social security benefit levels. Women also generally tend to outlive their male spouses. Therefore, they should consider starting their own benefits as soon as they are eligible.

Taking survivor benefits as early as possible is another scenario where taking early benefits may be financially savvy. Surviving spouses should consider taking survivor benefits while letting their own Social Security benefits continue to grow until age 70, at which point they can switch over to their own benefits.

You can begin collecting Social Security while continuing to work. However, your benefits will be reduced based on the amount your earned income exceeds certain levels established on an annual basis. For example, for the tax year 2012, a person under full retirement age may earn up to $14,640 and NOT lose any benefits. After that threshold your benefits are reduced $1 for every $2 you earn. A beneficiary who is of full retirement age can earn up to $38,880 in 2012 and NOT lose any benefits. After the threshold the benefits are reduced $1 for every $3 earned. Note that these thresholds relate to earned income and not to investment income. For more information visit the frequently asked questions section of the Social Security Administration site at http://ssa-custhelp.ssa.gov/app/home/session/L2F2LzEvdGltZS8xMzM1MzY0Nzc4L3NpZC9qaHhIZHhXaw%3D%3D .

There is no “right” answer that applies to everyone when deciding how to time your Social Security benefits. Therefore, you must do your research and consider consulting an advisor.