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When Should I Start Taking Social Security? (Part 2)

401(K) 2012

Last week I talked about the benefits and limitations of taking your Social Security benefits early…before the so-called “normal retirement age (NRA).”

So now, let’s see what happens if you take your Social Security benefits “on time” or on a delayed basis.

Option #2. You can take your Social Security benefit at the normal time. Depending on your year of birth, Social Security identifies a “normal retirement age (NRA)” for everyone. If you were born in 1937 or before, your NRA was age 65. For those born in 1960 or after, your NRA will be age 67. Those both after 1937 but before 1960 have an NRA on a sliding scale between 65 and 67.

The traditional retirement age used to be 65. Now, thanks to the increase in Social Security NRA, it is 67. But I am finding that fewer and fewer adults are either able or willing to totally retire at 67. Some are continuing to pay off debts, others need to grow their nest egg and others simply enjoy their work and don’t want to stop.

Option #3. You can delay taking your Social Security benefits. If you were born in 1943 or after, every year you delay taking your Social Security benefits, your benefit grows by 8%. On its own, that’s a pretty impressive rate of growth on something guaranteed by law.

A Social Security recipient who would have received $1000 per month at his normal retirement age of 66 would see that $1000 grow to $1,320 per month if he delays drawing his Social Security benefit until age 70.

So how do you decide when to take your benefits? Here are a few observations:

Be careful about taking benefits early just so you can retire now. You might just find yourself older and unhappier if your income is not sufficient to meet your needs.

Be careful about taking benefits early if you plan to continue working. Remember, there’s a $1 benefit reduction for every $2 you earn – stiff tax.

If you retire at the normal time, be sure you know what you need, what you want and where it’s coming from.

What you need is for your basic lifestyle needs to be met.

What you want is enough for some of life’s “want to’s.”

And where it’s coming from refers to the specific ways you will be converting your retirement assets (401K, savings, etc) into retirement income.

For many, delaying the receipt of Social Security benefits may provide a 30% larger safety net of conservative, guaranteed income at a time in life when conservative guaranteed things are highly valued.

Social Security is a valued, valuable social safety net. Most of us need to carefully study our options to get the most out of the system.

A financial plan tailored to your retirement needs is a great place to start that study.

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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