Start collecting Social Security at 62 — or wait?

John W. Schoen Senior Producer • Profile • E-mail

A lot of Answer Desk readers approaching retirement — including more than 70 million baby boomers — are stumped when it comes to a key question concerning Social Security benefits. Greg in Pennsylvania is wondering: is it better to start collecting early — even though the check is smaller — or wait until the full benefit kicks in?

Is it better to take Social Security at 62 and use retirement money, or wait until 66 and use all retirement money until then?
— Greg, Pittsburgh, Pa.

Unfortunately, there is no one-size-fits-all answer for this one. The sliding scale used to calculate benefits — paying you a smaller monthly check if you retire “early” and more if you wait longer — depends on the year you were born. Your lifetime payout depends on how long you live. And if you work after your retirement age, you may have to give some of your benefits back.

So the first step is to go to the Social Security Administration's Web site and find out when you’re entitled to full benefits.

For those born between 1943 and 1954, for example, you can start collecting benefits at age 62, but you’ll only get 75 percent of what you’d get if you wait until you’re 66. If you wait until 67, you get 108 percent of your monthly benefit. And at age 70, you’ll collect 132 percent — the maximum you can get by delaying benefits.

But your total lifetime payout depends on how long you live. The average life expectancy in the U.S. in 2003 was 74.8 years for men and 80.1 for women, or 77.5 for both sexes, according to the Centers for Disease Control and Prevention. If you make it to 65, your life expectancy rises to an average of 83.4 for both sexes. So let's assume you’ll live to be 77.5. (Of course, as they say, your mileage may vary.) 

Now, let’s say you’ve got $1,000 a month coming to you at age 66. If you start collecting at 62, you’ll collect $9,000 a year for 15.5 years for a total of $139,500 in constant dollars (that just means not adjusted for inflation.) If you wait until 66, you’ll get $12,000 for 11.5 years, or $138,000 — about the same as if you started collecting early. On the other hand, if you assume the longer life expectancy of a 66-year old today, you could expect to collect for 17.4 years, which makes for a lifetime payout of $208,800.

So far, so good. But if you decide to collect at 62, and you keep working, you’ll need to account for the “earnings cap” — which was $12,480 for 2006. For every $1 you make over that limit, you have to give back 50 cents of your Social Security check. The earnings cap goes away at 66.  So if you plan to keep working, starting your benefits at 62 may not be such a good idea.

In the end, since you don’t know how long you’ll live, your decision will likely have less to do with maximizing your total payout and more with your personal retirement plan. Collecting early means locking in a lower payment for the rest of your life – and for your spouse if they survive you.

So some people may prefer the security of collecting a bigger check. On the other hand, if you need the money at 62, you may be better off collecting early and letting your tax-deferred savings and investment continue to accumulate returns.

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