When Should You Collect Social Security?

Forget about your investments for a moment. Yes, I know, your portfolio has lost more than 30 percent in a year, but chances are there's another critical financial issue that you've spent a whole lot less time thinking about.

That is when and how you will collect Social Security retirement benefits.

Make the wrong choice, and you could lock yourself into 30 years of reduced income. Make the right choice, and you could more than make up for what you've lost in the past year's market turmoil.

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The simple fact is most Americans start collecting Social Security retirement benefits at far too young an age. The typical American begins collecting within one of year of turning 62, the earliest age possible.

By doing so, these early retirees settle for a monthly benefit that right now is 25 percent less than what they would receive at their full retirement age (currently 66). For today's recipient eligible for the maximum monthly benefit, that's the difference between $19,665 and $26,220 a year.

Wait until age 70, and the difference is even greater: $19,665 at 62 and $35,672 at age 70. (All figures are in today's dollars.)

The cynics rightly point out that recent projections show the Social Security Trust Fund will be exhausted in 2037. But even without any changes in the system before then, current Social Security tax payments will be able to fund benefits at reduced levels.

I happen to believe that by 2037 there will be some type of fix in place even if the political courage to do so now is lacking.

In general, the longer you can wait to collect Social Security, the better off you will be, particularly if you are in good health and stand a decent chance of living into your 90s.

That said Social Security is not a one-size-fits-all program. When and how you should begin collecting will differ with your circumstances, including your health, income, net worth, marital status and spouse's age and work history.

Retirement and Social Security

Factoring in all of these issues can make for a complicated decision as you approach your retirement years. That's why I say anyone in their 50s or older should learn more about how Social Security works and start thinking about what's the best way to maximize their retirement income.

In recent years, academic studies have highlighted several ways for eligible recipients to maximize benefits. One strategy involves paying back to the Social Security administration what someone began collecting at age 62 to qualify for a higher monthly benefit based on an older starting age.

A second strategy for married couples suggests maximizing the couple's joint benefits by claiming a wife's Social Security benefits at an early age and then delaying the husband's collection of benefits until beyond his full retirement age.

The Center for Retirement Research at Boston College outlined another strategy in a recently published paper entitled "Strange But True: Claim Social Security Now, Claim More Later."

It explains how married individuals can benefit from provisions that allow them to collect either a "retired worker benefit" based on their own earnings and/or a "spousal benefit" equal to one half of their spouse full retirement age benefit.

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