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Social Security early payout will cost you later

Printed Social Security checks are shown this file photo. AP

Printed Social Security checks are shown in this file photo. AP

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Updated: May 3, 2013 12:15PM

Baby boomers are facing a decision that could add — or subtract — a small fortune from their retirement income over their lifetimes. It’s the decision about when and how to take their Social Security benefits. And depending on your circumstances, the wrong decision could cost a married couple more than half a million dollars in future benefits.

T. Rowe Price, the investment management company, has just unveiled a new, free, online tool designed to make Social Security decision-making a more logical process. They recognize that even for people with additional savings, such as 40l(k) plans, IRA rollovers, and non-retirement savings, the decisions made about the appropriate time to take, and coordinate, benefits can have a significant and lasting impact on retirement planning.

Their “Social Security Benefits Evaluator” tool, easily accessible from the home page at, focuses on your personal needs and specific goals — whether you’re married or single. It graphically demonstrates comparisons of the results from different strategies. But first, you must understand the kinds of decisions you’ll be considering.

Getting started: Big decisions

Let’s start with the assumption that if you’re over 55, Social Security will be there for you in its present form at the time you start making choices. Then, your major decision revolves around when and how to start taking benefits.

Some people are forced by necessity to take benefits as soon as allowable — at age 62. They understand that their benefits will be permanently lowered by this decision but simply need the money to be able to survive. That may be why, according to Social Security, about 74 percent of retired workers claimed their benefits earlier than full retirement age.

In fact, if you’re still working and decide to collect benefits before full retirement age, your Social Security check is temporarily penalized: $1 in benefits is deducted for every $2 you earn above the annual wage limit, which is $15,120 in 2013. Once you attain full retirement age you can earn as much as you want and there will be no reductions in your annual benefits.

For those born from 1943 through 1954, full retirement age is 66. For those born in succeeding years, the age of full retirement benefits increases two months per year, until those born in 1960 and later will be able to collect full benefits when they reach age 67.

Every year you delay taking benefits — until age 70 — adds approximately 8 percent to your monthly check. Plus, since future Social Security benefits are indexed to inflation, the actual amount of your future checks could be that much larger if you wait to receive a larger base check.

Clearly, this is an important decision to make if you can afford to delay taking benefits, and if you expect to live a long life based on your current state of health, and genetic family components.

When you are a married couple, the decision about when each starts to take benefits becomes more complicated, depending on your goals.

♦ Is your goal to get a smaller benefit but start collecting as soon as possible?

♦ Is your goal to get maximum benefits over both lifetimes?

♦ Is your goal to make sure a surviving spouse doesn’t suffer as sharp a drop in income on the death of the first spouse?

These are just a few considerations that might impact your timing decision.

TRP Social Security
benefits evaluator

That’s where this unique online calculator is most helpful in showing the impact of your choices, both graphically and in the dollar amount of benefits you’ll receive based on your decisions. Just go to to get started.

There is no registration and no need to reveal any personal information in order to use this tool, and the information is not saved on their website. To get started, enter your gender, marital status, and date of birth. Your benefits are estimated based on the “current salary” figure you input. (There is a link to the Social Security website where you can get your own personal estimate to use in the tool, if you want.)

There are some age assumptions made: that if you are single you will live to age 95, and if you are part of a married couple, one of you will reach age 95, and the other will live to be 83. That’s in line with current actuarial guidelines.

Now, you can get started by choosing a goal, similar to those listed above. Singles can select one of three goals; couples can select one of seven goals. Then with a click of your mouse, you can see graphically how different strategies can generate different income streams — and differing levels of total benefits — depending on the choices you make around when to start your benefits.

The payoff

The time to start making these decisions about Social Security is before you approach the first decision point at age 62. Most recent studies show that Americans are woefully under-saved for retirement — and will become even more dependent on Social Security. Combine that need with growing longevity estimates, and you can see how important it is to make smart decisions about how to receive your benefits based on the payroll taxes you paid into the Social Security system over your working life. And that’s The Savage Truth.

Terry Savage is a registered investment adviser for both stocks and futures. Post a question on her Sun-Times blog at Copyright Terry Savage Productions, Ltd. Distributed by Creators Syndicate.

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