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Carefully Timing the Start of Your Social Security Benefits

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Most of us look forward to the time when we can retire. Retirement often comes with a steady paycheck from the government in the form of Social Security. Collecting Social Security may seem as easy as filling out a few forms. But without planning and careful consideration, you could be missing out on some big bucks in retirement.

Here are a few things to keep in mind when you're determining the best time to start collecting Social Security benefits:

  • The longer you wait, the more you get: Every person who is eligible for Social Security can begin collecting a reduced benefit at age 62. Just how reduced depends on the year you were born. Go to www.socialsecurity.gov for details.

    Your benefit increases each month that you wait past 62 until you reach age 70. Once you hit 70, the benefit increase stops. So the question becomes: Do you take your benefit at 62, 70, or somewhere in between?

  • Penalty for workers: If you plan to take your benefit before your Full Retirement Age (see www.socialsecurity.gov), you will be penalized $1 in benefits for every $2 in earnings over $14,160 for 2010. If you earn more than $37,680 in 2010 and that is the same year you hit full retirement age, your penalty will then be $1 for every $3 in earnings.

    If you are under your full retirement age, you will want to make sure that you are not earning more than these thresholds or your benefit can be greatly reduced.

  • Maximize your benefit: The theory for Social Security used to be that it made sense to start collecting benefits as soon as you are eligible. After all, it is free money. However, that may not be your best option.

    Social Security really is the best stream of income you will receive in retirement. Why? The money is as guaranteed as we can get in this world (backed by the federal government), it increases each year with inflation (a trait most annuities or pensions do not have), and it is tax efficient.

    If you have the ability and the means to put off collecting your benefit, it can be beneficial to your late retirement years to have a larger, inflation adjusted stream of income coming in every year — no matter what happens to the economy.

  • Consider Social Security planning: Understand the rules and nuances of Social Security. If you don’t have the time or patience to learn them, work with an expert to help you decide your best personal strategy. It may be best for one spouse to collect and one to wait, both spouses to wait, or to collect as early as possible. There is no one right answer for everyone. Your individual situation must be reviewed to determine the best course of action for you.

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