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Social Security timetable requires calculations

Updated: May 3, 2013 12:14PM

Originally published: August 14, 2006

As baby boomers turn 60 there’s a big decision on the horizon. Your decision to begin taking Social Security benefits will have an impact on all your retirement planning.

That monthly check might not allow the retirement lifestyle you dream of. The maximum for a 2006 retiree is about $24,685. But, deciding whether to take payments at age 62, or wait until your full retirement age, or delay until age 70 is a choice that must be made carefully.

The first step is to stop thinking in terms of age 65, the traditional retirement age at which everyone qualified for Social Security. Now, for those born after 1937, the eligibility age creeps up a few months or years, depending on your birth year.

For example, those born in 1940 become eligible for full retirement benefits at 65 and six months. Those born in 1943 to 1954 will have to wait until age 66 to qualify. To find your eligibility age, go to and click on “plan your retirement.”

Taking benefits earlyEven that new eligibility age is not set in stone. You can actually start taking benefits earlier, at age 62. Your benefits will be permanently reduced if you make this choice, although they will be adjusted upward annually as a result of inflation.

For example, those in the 1943-1954 years who elect to take that monthly check at age 62 will find their benefits reduced to 75 percent of what they would have received at age 66.

You might consider taking reduced benefits early if you can’t work anymore and need the money to live on. Or if you figure your heredity or current state of health portends a shorter life span. Some people worry that Social Security might “run out” of money, and they decide to take their checks now. Others figure that even if they don’t need the money, they could take the checks early and invest that cash.

To help make this decision, you’ll want to calculate the break-even point. That’s the year in which -- if you live that long -- you would have been better off waiting and taking the larger check. You can do that calculation online at the Social Security Web site by clicking on the “break-even” calculator.

Before making that decision, consider the potential penalties: If you take benefits early, but keep working, your Social Security benefits are reduced by $1 for every $2 you earn above a certain amount ($12,480 in 2006) until the year you finally retire. In that year, your benefits are reduced by $1 for every $3 earned (over $33,240 in 2006), until you reach your month of full retirement age. After that, you can earn as much as you want without penalty (but you’ll still pay income taxes).

Here’s the other side of the coin. Perhaps you’re still working or don’t currently need the monthly check. If you delay taking your Social Security check until age 70, or some period of time between full retirement age and age 70, then you’ll get a permanently larger check. If you expect to outlive the average life expectancy for today’s 65-year-olds -- currently age 82 for a man, and 85 for a woman -- you’ll collect larger checks for a longer period.

Taxes might enter into your decision. Depending on your income level, a large portion of your Social Security benefits could be subject to income taxes. For this calculation you’ll need to figure your provisional income, your adjusted gross income plus any tax-exempt interest from investments plus half of your Social Security benefit.

A married couple filing a joint return with between $32,000 and $44,000 in provisional income might have to pay tax on up to 50 percent of their Social Security benefits, a level that rises to taxing 85 percent of benefits at higher incomes. So it might be sensible to delay taking Social Security checks until later when your working income is lower.

Enroll in MedicareHere’s one more important note: Don’t forget to enroll in Medicare, even if you delay taking Social Security checks. The trigger for Medicare eligibility remains unchanged at age 65, no matter what your retirement age for Social Security benefits. People who delay signing up and are not covered by insurance at work will face a penalty.

Obviously there’s more to financial planning around Social Security than just guesswork. That’s The Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.

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