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By Stan Hinden | February 2008
I'm too old to be a baby boomer. But my wife, Sara, and I have three children who are members of the Baby Boom Generation. Indeed, it's hard for us to believe that our "kids" — now 53, 51 and 47 — are only about a dozen years away from retirement themselves!
As a financial journalist, I've spent years writing about what would happen to the 78 million boomers when it came time for them to retire.
That time has finally arrived. This year, the oldest of the boomers-3.2 million children born in 1946-are celebrating their 62nd birthdays. And that means that they're eligible for Social Security retirement benefits.
Coming up behind them are the millions of other boomers who arrived in American homes between 1946 and 1964. It's worth noting that each and every boomer who turns 62 will be faced with the same question:
"When do you want to take your Social Security benefits?"
My three boomers won't have to answer that question for a few years yet. But if they were trying to make a decision today, this is what I would tell them:
First, this will be one of the your most important retirement decisions. It will determine how much income you — and perhaps your spouse — will get from Social Security for the rest of your lives.
Second, do your homework. Take time to learn how Social Security works and which options will work best for you and your family.
Third, think carefully about the condition of your finances, including your savings, and whether you'll have income from a pension or investments. Think, too, about whether you're really ready to retire; about the state of your health and how long you think you might live. These are all important factors.
Boomers who have been reading the yearly statements they get from Social Security probably know they can take their benefits anytime between age 62 and age 70. Generally speaking, they have three choices:
They can take reduced benefits at age 62, full benefits at full retirement age or increased benefits at age 70. Full retirement age is 66 for boomers born between 1946 and 1954. For those born later, full retirement age will gradually rise to age 67.
If, for example, you are a boomer who was born in 1947 and you are eligible for a $1,000 a month payment when you reach full retirement age of 66, you will have several choices:
You can claim your benefits at age 62 but the $1,000 payment will be reduced to $750 a month. Or, you can wait until 66 and get the full $1,000 a month. Or, you can wait even longer, until age 70, when your payment would be $1,320 a month.
Why does it work that way? Taking benefits early gives you smaller checks for a longer period of time. Taking benefits later gives you larger checks for a shorter period of time.
Social Security tells us that if you live to an average age for people in your demographic group, you will collect about the same amount of money whether you start benefits early or late. But being able to decide when to claim your benefits can be a very useful retirement tool.
The wild card in all this, of course, is the question of how long you will live. The longer you live, the more money you will collect — and vice versa. Fortunately, longevity continues to increase. Currently, Social Security tells us, a 65-year-old woman can expect to live until 84, a 65-year-old man until 81½.
But if history is any guide, about half of the boomers will take their benefits at age 62. Why do so many folks take early benefits? Perhaps, for these reasons:
But here's something boomers should think about. If you take early benefits at 62 in 2008 and continue to work, Social Security will withhold $1 in benefits for every $2 you earn above $13,560. The earnings limit begins at 62 and ends when you reach 66 or full retirement age.
But in the year in which you reach 66, the earnings limit will change. In 2008, Social Security will withhold $1 for every $3 you earn above $36,120. But Social Security only counts your earnings until the month you turn 66.
The benefits withheld are returned to you in later years. But the process may prove annoying.
Meanwhile, there are considerable advantages to delaying your benefits while continuing to work.
Clearly, there's much to learn and think about before you make your decision on Social Security benefits. One of best sources of information is the website of the Social Security Administration: www.ssa.gov
Here are several links to Social Security sites of special interest to future retirees:
Topic: Is it better to start benefits early or late?
Topic: Benefit reductions for starting early.
Copyright 2008, Stan Hinden. All rights reserved. Reprint permission required.
The author was compensated for writing this article by AARP Financial.
