Dollars and Sense: When to begin taking Social Security payments

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By The Staff

Choosing when to retire and start drawing Social Security benefits is an important decision and one that is unique to each individual. According to the Kentucky Society of CPAs, a person can begin taking payments as early as age 62, based on Social Security regulations, but when you retire will have an effect on the amount of the payment you receive.

How payments are calculated  

Your Social Security benefit payments are based on your work history. In short, the more money you have earned over your career, the higher your benefits will be.

As noted, though, the age when you retire also will have an impact. Although you are allowed to begin collecting payments at age 62, you will not yet have earned full benefits. That means that your payments always will be about 25 percent less than they would have been if you had waited until full retirement age. However, early retirees will face benefit forfeitures for working while receiving benefits. If you continue to work to age 70 and beyond, you will receive more than the full benefit amount when you finally retire. Remember, too, that anyone born in 1938 or later will not receive full benefits if he or she retires at 65 —  for many years considered the official retirement age. Depending on the year when you were born, you may have to wait as late as age 67 to retire with full benefits.

An informed choice

So, when’s the best time to retire? If you are a healthy person who enjoys working, it’s probably best to continue doing so as long as possible without drawing on Social Security. Sometimes, the decision to continue working might be less about choice and more about the necessity to work. If you are in poor health, it may be best to take your payments as soon as possible. You can apply for Social Security disability benefits at any age if you are no longer able to work.

However, if you have a large retirement nest egg and don’t need the maximum Social Security benefit, you can always choose an early retirement. Whatever choice you make, don’t forget to sign up for Medicare health care coverage when you become eligible for it at age 65.

Your report card

Every year, you receive a Social Security Statement that details your own earnings history and offers estimates of what your payments will be if you retire at different ages. It also discusses the disability benefits you can expect if you are severely disabled and describes the survivor’s benefits that eligible family members will receive if you die. This statement is a great tool to use as part of your overall retirement plan. You’ll find more information at the Social Security Web site at www.ssa.gov.

One part of the plan

Your Social Security payments likely will replace about 40 percent of your pre-retirement income, according to the Social Security administration. The government also estimates that you will be able to live during retirement on about 70 percent to 80 percent of your previous income, although some advisers believe you may realistically need 100 percent of your pre-retirement income. This depends on your retirement lifestyle. That means that your Social Security checks will not be enough to provide you with a comfortable retirement. In addition to any pension payments you may receive from your former employer, you also should plan to have sufficient personal savings and investments to cover your costs.

If you have questions about the best time to begin drawing Social Security payments — or about other retirement planning issues — consult a local CPA. He or she can help you find the answers to your family’s financial questions.

Dollars and Sense is a weekly column contributed by the Kentucky Society of CPAs to help readers with financial matters. For a referral to a CPA in your area, go to kycpa.org or call (502)266-5272 or (800) 292-1754.