Boomers' eagerness to retire could cost them

In part, that's because Ditzel, who's also a nurse, might return to work at some point. Under the law, Social Security beneficiaries who haven't reached full retirement age are subject to an "earnings test." It cuts their benefits by $1 for each $2 they earn over an annual limit. In 2008, that limit is $13,560.

That's not the only reason Ditzel says she probably won't file for benefits this year. She also realizes that her retirement income might need to last for decades. An avid traveler and member of a crew team, Ditzel is in excellent health.

"At the moment, I don't really need the extra income, and I'm thinking if I live to be 90, I'll be glad to have the higher (benefit) rates," she says.

In fact, there's a 41% chance that a 62-year-old woman today will live to 90; a 62-year-old man has a 29% chance.

For a married couple, there's a 58% chance that one of them will live to 90 and a 29% chance that one will reach 95.

The Social Security Administration projects that the average retiree's "break-even" age for Social Security benefits is 77. A retiree who dies before then would have fared better by taking benefits at 62. Those who live past 77 would earn more by delaying benefits.

Retirees who take reduced benefits at 62 and live to 90 would lose $39,000 in benefits; those who live to 95 would give up $54,000, the SSA says.

But some financial analysts say your losses would be far greater than that. If, for example, you include the annual cost-of-living increases that boost Social Security checks, Gebhardtsbauer's estimate of how much you'd lose by taking benefits early far exceeds the SSA's: $83,000 for those who take benefits at 62 and live to age 90 and nearly $149,000 for those who live to 95.

Gebhardtsbauer sets the break-even age a bit higher than the SSA does. That's because he takes into account interest earned by those who take benefits starting at 62. Even so, by including the annual cost-of-living increases, he calculates even more value in delaying benefits. The reason: The cost-of-living adjustments will apply to a larger sum.

Thanks to compounding, "those cost-of-living adjustments will be huge, especially if you live long in retirement," says James Mahaney, a retirement specialist at Prudential Financial.

Even if you're convinced you won't live so long, taking your benefits early could hurt your spouse.

When a married beneficiary dies, the survivor can continue receiving his or her own benefit or the deceased spouse's benefit, whichever is more. So spouses who take their benefits early don't just shrink their own payouts; they also reduce the amount the surviving spouse will be eligible for.

• Taxes.

Analysts generally urge retirees to delay withdrawing money from their 401(k), IRA and other retirement savings accounts as long as possible. That way, the thinking goes, the tax-deferred investments can grow and compound. But that advice, Mahaney says, ignores the punishing effect of taxes on Social Security benefits.

If all your income comes from Social Security, your benefits usually aren't taxable. But retirees with other income, including withdrawals from most retirement plans, could owe taxes on a huge chunk — 50% to 85% — of their benefits.

The tax was originally designed to target wealthy seniors. But because the income thresholds weren't indexed to inflation, the tax has spread to middle-income retirees.

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