Timing Your Social Security Benefits

In the next several decades almost 80 million baby-boomers are set to reach retirement age and begin collecting their social security benefits.  However just because they reach the magic age to start collecting their hard earned benefits doesn’t mean they should start cashing in those checks prematurely.  Electing when to start receiving social security benefits can be one of the most important decisions a senior makes, particularly if they are depending on these payments to help see them through all their retirement years.  Given our increased life expectancies, far beyond what was anticipated at the time of birth, electing to take benefits too soon could be a critical mistake one could later regret.  It is important to note that delaying ones benefits beyond the SSA* designated retirement age can result in a significant increase in benefits.  For example if you are eligible to begin collecting full social security benefits at age 66 and you choose to postpone receiving your benefits until the age of 70, you will earn an additional 32% credit tacked onto your benefits.  This would result in a payout to you of 32% more than you would have otherwise received by waiting only four more years to start collecting your benefits. 

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If you choose to continue working and decide to begin collecting early social security benefits (that is you are eligible to receive partial benefits but have not yet reached full retirement age as defined by the SSA* based on your year of birth) you can supplement your benefits with up to $13,560 in income prior to infringing on your social security benefits.  However once your earnings exceed the limit, you will run into means testing rules which may cut your benefits in half.  This rule would apply only if you elected to take early benefits but if you were to wait until you reached full benefit retirement age to start collecting social security payments then you would be able to supplement your income without running the risk of reducing your overall benefits.  This is another illustration of how waiting to collect benefits can greatly benefit you.

There are several valid situations where you may want to consider collecting your benefits early; that is at the time you are eligible to begin receiving partial benefits but have not yet reached full retirement age according to the SSA*.  The first situation occurs if you are married and you generate very little income; in this case you may be eligible to collect early benefits yet are still able to claim survivor benefits at a later time without adversely impacting the amount of total benefits received.  The second case where you may consider taking early benefits is if you have an investment portfolio which has been aggressively invested for maximum potential growth.  If collecting benefits now would allow you to maintain a fully invested position, thereby achieving greater future returns, then it would be a mistake to divest your portfolio and postpone benefits. Calling upon your social security benefits before reaching full retirement age in this case could help you avoid an opportunity cost and may well be worth the reduction in benefits in the long run.  

*SSA=Social Security Administration

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