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Social Security- now or later?

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June 21st, 2011

When it comes to social security benefits, the one big question on everyone s mind is: collect now or wait until later? While there is no single correct answer or magic number, there are some guidelines that can help you decide when you should start collecting social security.

What other income do you have?

If you are working and earning more than $14,000 a year, Nancy Butler, a Connecticut financial planner and motivational speaker (aboveallelse.org/index.php), says it is usually best to wait. Also factor in any pension benefits you will be receiving. Some pension plans allow you to take a higher payout when you first retire, and then the payment is reduced later when you begin collecting social security.

Consider your personal retirement goals

Every year you defer your social security benefits, your monthly payment goes up. For some people, that can be a compelling incentive. Based on inflation alone, you can count on your living expenses being higher when you are 75 than when you are 66. So, if you have other retirement savings and your health and genetics indicate you will live into your 80s or 90s, Butler says you may want to wait a few years to begin collecting social security in order to collect a higher payment later. On the other hand, Butler says, Other people say, I d rather have the money now, while I m young and healthy and able to do more things.

Crunch the numbers

While it s true your social security payments increase the longer you wait to begin collecting them, you may make more money in the long run if you take your benefits early. Virginia financial planner and radio show host Larry Rosenthal says the average break-even age is 79 to 81. That means you would need to live until at least that age to make more money by deferring your benefits from age 62 to 66. Sometimes $1 today is better than $2 tomorrow, Rosenthal says. The federal government provides benefit calculators (socialsecurity.gov/planners/calculators.htm) that can help you determine the optimal age to start taking social security. In addition to that, Rosenthal says you should consider social security to be just one element of your overall financial plan. When you have a financial plan that accounts for all of your savings, income, and expenses, Rosenthal says it is easier to make an informed decision about when to begin collecting social security.

Other factors to consider

Married couples should certainly work together when deciding when to take social security benefits. Florida financial advisor Scott Cramer (cramerandrauchegger.com) says that if the higher-earning spouse defers benefits until age 70, when that person dies, his or her surviving spouse may be entitled to a higher monthly payment. However, it s no secret that social security is likely to undergo reform during our lifetime. Scott Cramer points out that the warning is printed on the first page of your social security statement: In 2017 we will begin paying more in benefits than we collect in taxes. While there s no need to panic, you should consider potential changes to social security when deciding when to take your benefits. 'meghan.streit@erickson.com

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