Considering taking Social Security benefits early?

Use the Calculator

by D. Ray Lewis

One of the biggest decisions facing retirees today is whether they should start drawing their Social Security benefits prior to reaching full retirement age. According to the Social Security Administration, “retirement age” is a sliding scale based on the year in which you were born, ranging from age 65 to 67.

While you are permitted to begin Social Security benefits at age 62, you will receive a lesser amount than if you wait until your full retirement age. For example, if your retirement age is 65 and you start drawing benefits at 62, you face a monthly reduction of 20% in your check. If, on the other hand, your retirement age is 67 and you began benefits at 62, your monthly check from Social Security would be reduced by 30%.

As a side note, no matter when you begin receiving your Social Security retirement check, Medicare benefits are only available after your 65th birthday.

The question remains as to whether or not a person should consider taking Social Security benefits early. The simple answer to the question is—it depends! The potential retiree must first make some immediate financial decisions. Can you survive on the reduced Social Security amount? By drawing benefits early, the amount a “retiree” can earn will be limited. If you are under full retirement age for the entire year, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2011, that limit is $14,160. So by drawing benefits early, you limit the amount that you can earn.

On their website, www.ssa.gov, the Social Security Administration (SSA) gives the following example of a 62-year-old filing for Social Security benefits in January 2011, with a payment of $600 per month ($7,200 for the year). During 2011, this person plans to work and earn $20,480 ($6,320 above the $14,160 limit). The SSA would withhold $3,160 of the Social Security benefits ($1 for every $2 you earn over the limit). To do this, the SSA would withhold all benefit payments from January 2011 to June 2011. Beginning in July 2011, this person would receive their $600 benefit, and this amount would be paid each month for the remainder of the year. In 2012, the SSA would pay you the additional $440 they withheld in June 2011.

Metropolitan Life Insurance Company has developed a three-question test to determine whether you should start collecting Social Security early. This tool, which can be found at, www.metlife.com/individual/financial-tools/social-security-tool/index.html, is a quick way to determine your break-even point. The Met Life calculator points out that the potential retiree should consider the long-term impact of reducing his or her monthly payments by 20-30%.

Again, the decision is not easy. While the Board of Retirement has no crystal ball to tell you what is best for you, generally we suggest that you not start drawing your Social Security benefits until you reach full retirement age if you are still working. Taking reduced benefits and potentially having those benefits reduced further because of the earnings limit is not worth it financially.

However, if you truly retire prior to your Social Security retirement age, it may be better to take your reduced Social Security benefits than to go into debt at this stage of your life or make large withdrawals from your tax-deferred retirement accounts, such as your account with the Board of Retirement.

Just as with any decision concerning retirement, your decision to take Social Security benefits early should be bathed in prayer. To learn more about your Social Security benefits, please visit the SSA and Met Life websites above.

About the Writer: D. Ray Lewis joined the Board of Retirement in 1983. He became director in 2005 after serving for several years as assistant director.