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Social Security Benefits--Now or Later?
Apr 20, 2008 
Stanley A. Tomkiel, III, Esq. is a practicing attorney and a partner in the New York law firm of Tomkiel & Tomkiel. Mr. Tomkiel was formerly employed by the Social Security Administration as a claims representative in several field offices in the Northeast. He first published the Social Security Benefits Handbook in 1985 and has revised it many times since then to provide the latest information for readers. The Fifth Edition was published in 2007. An online edition is available at http://www.socialsecuritybenefitshandbook.com/. Mr. Tomkiel has been practicing personal injury law since 1979. He handles complex serious injury cases. Mr. Tomkiel has achieved the highest rating -AV- by Martindale Hubbell, which indicates very high to preeminent legal ability and very high ethical standards as established by confidential opinions from members of the Bar. He lectures at continuing legal education seminars, and is a member of numerous professional associations.
“Should I apply for reduced social security retirement benefits at 62 or wait till full retirement age at 66 so I can get the full benefit amount?”
This is one of the most the most common questions folks have when it comes time to consider getting your SS benefits.
You can start collecting benefits as early as age 62 if your annual earnings are below the yearly limit, currently $13,560 (even if above that some benefits may be paid depending on certain variables). But the benefit amount is reduced for each month under age 66. For retirement benefits on your own account, the full reduction is now 25%. Note that for people born after 1954 the reduction gets higher gradually, up to 30% for those born in 1960 and later.
So for example, putting aside future cost of living increases, if a beneficiary now has a full benefit (called a “primary insurance amount” or PIA) of $2,000, the reduced amount at age 62 would be $1,500 per month. At 66 it will be $2,000. So take the reduced benefits now or wait? To decide this, you look at what you will give up compared to how long it will take to make it back. $1,500 per month for 48 months = $72,000. That’s what you give up by waiting (not counting interest if you bank the money).
So what’s the gain? - an extra $500 per month at age 66 (not considering intervening cost of living adjustments). So we divide the loss from age 62 -66 ($72,000) by the gain ($500/mo) and see that it takes 144 months to get the loss back (again not counting interest or cost of living adjustments which come close to canceling each other out anyway).
Getting back to the calculator, we divide 144 months by 12 to see that it will take 12 years beginning at age 66 to get back what could have been received from age 62-66. No longer needing the calculator, we add 12 to 66 and see that it will take till age 78 to recover the deferred benefits. Only then will there be an advantage, at the rate of $500 month. Is it worth it? That 78 age sounds pretty close to the average life expectancy!
But actually, the life expectancy if you are already age 65 varies depending on race and sex from 15.2 years (to age 80 for black males) to 20 years (to age 85 for white females) [source – CDC data Table 27 - http://www.cdc.gov/nchs/data/hus/hus07.pdf#027]
So if you are in good health and feel lucky enough to dodge the Grim Reaper until at least age 78 to see any gain on deferring your benefits, then by all means, let the government hold your money for you and give it back to you monthly.
But there are other important considerations about early retirement, especially health insurance. Medicare does not begin until age 65, so you don’t want to lose any employment-related insurance before then.
But for me, if I’m not working, I’d rather take the money if I’m eligible and if it’s not needed, bank it. It’s available, it’s mine and if I don’t need it, I’ll manage it instead of the government. And if I die, it will be left to my heirs, not the government.
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