Should you crack open the Social Security piggy bank? 

Hello Pre-Boomers, Boomers and beyond.

 Have you ever wondered what would happen if you took your Social Security benefits now, before you hit 66?

This friends, is really not a black and white decision.

Social Security is not a simple system. You will have to employ a calculator, or your fingers. You might even feel like you need to have a degree in math with an emphasis on actuarial science.

I will try to simplify this for you because if you are cash strapped, you may have to look at dipping into this pseudo savings repository.

The cost of making the wrong actually complex decision can be large.

 For the oldest boomers, who turned 65 last year, please know that regardless of when you take Social Security and when you stop working, you must enroll in Medicare when you first become eligible at 65, or you could face financial penalties in the form of higher premiums.

 For those of you who are about to turn 65, you can start the process in advance which is what I recommend. Plan, plan, plan and then let go and have fun!

Here is a general proposition. You can start collecting Social Security anytime from age 62 to 70. The later you start, the bigger your benefit depending on when you were born. If you were born from 1943 to 1954, you will receive your full benefit when you hit 66. If you cash in at 62 you will get 25% less than your normal benefit. If you wait until you are 70 you will get 32% more than your normal benefit. For those of you born after 1954 you will have a slightly higher “normal” retirement age which means you will take a somewhat bigger hit for claiming your benefits early and get somewhat less of a bonus for waiting until you reach 70. Woman Fare Better If you claim early while working you will receive an earnings penalty. Until you reach the full retirement age, for each $2 you earn above $14,640, you lose $1 of your annual Social Security benefits. If you can wait until after 66, benefits don’t get cut no matter how much you earn. If you reach 66 this year, you can earn $38,880 in the months before you reach 66, without affecting your benefits. For each $3 you earn above those ceilings, you will lose $1 in benefits. Here is how it works in real terms. Let’s say that you are turning 62 this June and earn $50,000 a year. You could collect about $988 a month at 62 years. If you wait until you are 66 in 2015, you can get $1,391 a month. If you wait until you are 70 in 2019, you will receive $1,934 a month. Here is the tricky part. These benefit amounts are not as dramatically different as they might sound. If you live long enough, you will end up taking the same amount of benefits no matter what you claim—if you are a woman (and no, dressing like one won’t work!). If you are of the male persuasion, you may want to raid your security earlier. Since men do not live as long as women, logic dictates that gender plays a role in determining whether there is a breakeven point- -that is, the age at which waiting to collect a bigger check pays off. If you don’t need an early check to make ends meet, and particularly if you’re single, this could be a significant factor in your decision. You can check out the calculator on the Social Security site that will give you average life expectancy, without regard to your health or family history. There are a lot of internet sites that calculate your life expectancy taking into account your health, family history, exercise, eating, drinking and driving habits and even social relationships. If you’re in poor health, and you want to get some of your tax dollars back, it can make sense to claim Social Security as early as possible. I personally would not take benefits while I was earning a decent salary. Some think of waiting to take your benefit as insurance against outliving their money. It is like buying a larger inflation adjusted lifetime annuity for a lot less than you could buy a commercial annuity, even from a low cost, no-commission provider. Then again, I am a woman, hear me roar! Married Couples Fare Better The real brain twister arises in the context of married couples. Put simply, they are treated better. If one partner dies, the survivor can claim the deceased spouse’s check instead of his or her own, assuming the dead spouse’s check is bigger. In the actuarial and insurance businesses, this is known as the joint mortality. Where there are two individuals, there is a greater chance that at least one of them will live a long life and collect a bigger check. This means that the higher earning spouse should delay benefits well past 66, to buy that higher lifetime “second-to-die” annuity that will benefit the other spouse. When both spouses are alive a decision has to be made as to whether you will take what you yourself have earned, or up to half of your living spouse’s full retirement benefit. You can choose to take whichever is higher. But if you, as the low earning spouse rely on spousal benefits, you will take an even bigger early claiming hit than a primary wage earner. If you claim benefits at 62, you will receive only 35% of your spouse’s full retirement age check, instead of 50%. On the other hand, you will get no extra benefit for waiting past full retirement age to claim your check. So, for example, in a one-income couple household where the husband is four years older, the couple would receive the maximum benefit if the husband claimed at 70 and the wife put in for her spousal benefits at 66. Consider this angle as well. Let’s assume that you and your spouse want at least some cash coming in from Social Security before one of you reaches 70. Once the older individual reaches full retirement age of 66, benefits can be claimed and then immediately suspended. That spouse can continue to wait for a bigger benefit, while the other spouse is now eligible to claim spousal benefits. (For more on this strategy, read the Center For Retirement Research paper here.) Lastly, once you reach full retirement age, you can choose to take benefits as a spouse, while deferring your own earned benefit until later. So in a two-income marriage where the partners are the same age, one might claim benefits at 66. The other could then claim 50% of those benefits as a spouse, while allowing his or her earned benefit to build until 70. Again, this is a way to “purchase” buying longevity insurance for both of you.

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