When Should I Take Social Security? (Part 3)

October 7, 2011 at 7:00 am | Posted in Uncategorized | Leave a comment

This is the last part of the series! Here are just a couple more things to think about and the bottom line.

Changing your mind
If you previously elected to receive early Social Security benefits at a reduced rate, you have the option of paying back to the government what you’ve already received. You could then restart benefits at a later date to take advantage of a higher payout. As of December 8, 2010, the SSA announced that this option would henceforth be limited to one year’s worth of benefits, effective immediately.

For example, let’s say you elected to receive early benefits at age 62 and you’re now 63 and thinking of going back to work. You could stop receiving Social Security, pay back the one year’s worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.

Whether it makes sense to take advantage of this option depends on your tax situation, age and life expectancy. Of course, you also have to come up with the repayment money. You might want to enlist the help of a CPA or another financial professional to help you crunch the numbers.

What about the future of Social Security? 
If you’re skeptical (or downright cynical) about the future of Social Security, you may be inclined to take benefits as early as you can under the assumption that a bird in the hand is better than nothing. Healthy skepticism is understandable.

Early in 2010, the Congressional Budget Office announced that according to its own projections, Social Security would be running a negative cash flow as early as 2010—a full six years earlier than expected. That projection was confirmed in the annual Social Security Trustees report, released in August of 2010. The SSA also projects that beginning in 2037, Social Security benefits could be reduced by 22% and could continue to be reduced annually.

If you’re really worried about the future prospects for Social Security, that’s all the more reason to save more for your own retirement—even if it means spending a little less now.

The bottom line 
If you have a choice and are in good health, it’s probably best to wait as long as you can to take your benefits (but no later than age 70). There are many factors to consider, and deciding when to take Social Security can be complex. Get some help from your financial planner or tax professional if you need it.

Consider taking benefits earlier if …	Consider waiting to take benefits if …
You are no longer working and really can’t make ends meet without your benefits.	You are still working and make enough to impact the taxability of your benefits. (At least wait until your normal retirement age so benefits aren’t further reduced due to earnings.)
You are in poor health and don’t expect to make it to average life expectancy.	You are in good health and expect to exceed average life expectancy.
You are the lower-earning spouse and your higher-earning spouse can wait to file for a higher benefit.	You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.

 

For more information, you can check out Social Security Administration’s website.

Also, if you would like to view the unabridged version of this article, click here:

http://www.schwab.com/public/schwab/research_strategies/market_insight/retirement_strategies/planning/when_should_you_take_social_security.html

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