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When Should You Take Social Security?

This past month I covered the important details of Social Security. You also can join our free webinar today (July 30) on maximizing Social Security benefits and to Learn the 4-Step System to Wealth and Financial Independence. Visit artofthinkingsmart.com/sswebinar to claim your spot!

Since Social Security is a major source of income for most retirees, deciding when to take the benefits is an extremely important one. Should you take it as soon as you are eligible at 62, or wait until 66, or even 70, when you will receive the maximum benefit? The answer is not as simple as you think and is based on your individual situation. Improper timing can end up costing $100,000 to $150,000 over a lifetime. If you delay taking Social Security, your monthly benefits will increase by 8 percent per year until age 70.

Here are some interesting statistics on Social Security:

* 41 percent of men and 46 percent of women take the benefits as soon as they are eligible at 62.

* Half of Americans 65 and older rely on the benefits for at least 50 percent of their income, and 23 percent rely on it for at least 90 percent of their family income.

* Minorities are less likely to receive benefits, but when they do they are more likely to be dependent on them.

* The average Social Security payment is $15,528 a year.

When to take the benefits depends on your personal situation. It is not a one-size-fits-all decision. From a financial perspective, it all depends on your break-even age.

Here is how the benefits work: If you were born from 1943 to 1954, your full retirement age (FRA) is 66 and you will get a 25 percent reduction in benefits if you take it at 62, and 30 percent off for your spouse. If you were born after 1960, the FRA is 67 and will get a 30 percent cut from the FRA benefits if you take it at 62.

At what point is your break-even age to either wait or take the benefits? Females, married couples, retirees who generally invest in conservative investment portfolios during retirement, and retirees with longer life expectancies generally are more likely to benefit from delaying benefits. Studies show that if you live to be 65, your life expectancy is likely to be longer, with women living to 86 and men to 84. Twenty-five percent of this group will live past 90. If you believe you will be in this group, it may pay off to wait.

Retirees who have shorter life expectancies, invest more aggressively and believe they can get a higher return than the 8 percent Social Security will give them are generally more likely to benefit from taking it earlier. Also, many retirees can’t afford to wait and need the income as soon as they can get it. But you will end up locking the low benefit amount for life.

One benefit to Social Security is the cost-of-living adjustments that few other pension programs can provide. If you need the money, it may make sense to draw down from your retirement accounts to continue building your benefits.

There are some advanced strategies that you can use, such as taking the spousal benefits and then switching to your own at age 70. For more information on some of these strategies, visit artofthinkingsmart.com/sswebinar.