When To Start Taking Social Security: Debate Rages On


Retired engineer Doug Diederich advocates starting Social Security as soon as possible.

Some years ago, he and his wife both filed for Social Security retirement benefits at age 62. That was four years before their full retirement age and eight years before they could maximize their Social Security payouts (excluding the use of special strategies).

Their early filing reduced their Social Security benefit 25%. But by using Social Security for living costs, they could retain and invest their savings.

The happy result, says Diederich of Larkspur, Colo.: "What I've earned in the stock market has more than compensated for our reduction in Social Security. We've also gotten the comfort from not spending down savings."

But evidently, Angela Deppe wishes that her mother had held off: By starting Social Security early, at age 62, her mother will forfeit more than $100,000 in cumulative income.

If she had waited for Social Security until age 70, her mother "might not have had to continue working as hard as she is today to make up for insufficient retirement savings," says Deppe, founder of the online Social Security calculator and resource SocialSecurityCentral.com.

Such divergent views highlight the debate -- gaining traction as hordes of baby boomers retire -- over when to take Social Security. Pitted against a host of reasons for wanting the money sooner rather than later are the arguments for waiting: Today, people are living longer, and many lack sizable savings, some experts point out.

With Social Security, they get an inflation-adjusted benefit that lasts throughout retirement. And if they defer taking it past full retirement age (66 for those born between 1943 and 1954), their entitlement will grow 8% each year they don't collect, up to age 70.

Better To Wait?

"It generally makes sense for workers to postpone claiming (Social Security) as long as possible to get the highest monthly amount, assuming they are in good health for their age," Alicia Munnell, director of the Center for Retirement Research at Boston College, wrote in a report, "Social Security's Real Retirement Age is 70."

A recent Nationwide Financial Retirement Institute consumer survey found that 38% of retirees surveyed wished they had waited longer to start taking Social Security.

But for now, claiming benefits early -- even before full retirement age -- is still widely preferred. According to Social Security Administration data, in 2012, the average age for beginning Social Security rose slightly to 64.2 years for men and 64 years for women, from an average 63.6 years for both men and women in 2005. Less than 2% start taking Social Security at age 70.

Financial planner Brian Vosberg of Glendora, Calif., believes "there is no absolutely correct time to take Social Security. Timing can depend on a variety of factors, from one's health to financial and even taxation considerations."

Big Difference

Nonetheless, Vosberg's analysis of Social Security's payouts shows big differences between delayed filing for Social Security and starting it early.

In his example, a hypothetical single, never-married woman now age 62 would be entitled to a $1,500-a-month Social Security benefit at her full retirement age of 66.

Should she begin her benefit as early as possible, at age 62, she would start with a reduced payment of $1,125. But by waiting until age 70, she'd start collecting a larger monthly $2,469.

At age 90, her accumulated benefit, with assumed 2.8% cost-of-living adjustments, would reach $793,337 if she'd waited until age 70 to start it. That total is $217,936 more than she'd have cumulatively gotten if she'd begun taking Social Security at age 62, says Vosberg, author of The Complete Retiree's Guide to Social Security.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Mutual Funds

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