## Deciding when to start getting Social Security isn’t simple

January 12, 2003

If you think newspapering is a high-paying trade, let me tell you about my first full year in the business at a dinky paper outside New York. In 1975, I made \$7,908 -- about the same as \$26,000 today.

What kind of nerd keeps track of what he earned 27 years go? Not me. This data came the other day in my annual Social Security statement, which reports an employee's lifetime earnings.

More importantly, these statements tell what you can expect to get in Social Security benefits, assuming you keep earning at your current level until you retire.

And they point to a tough decision you'll have to make as your working life ends: At what age should you start taking benefits?

Benefits vary depending on when you were born and how much you earned during 35 working years. In 2003, a person who turns 62 and elects to start receiving benefits could get as much as \$1,412 per month. But if she turned 70 in 2003 and had waited until then to start collecting benefits, she'd get as much as \$2,045. These figures are adjusted each year to keep up with inflation.

At first glance, it looks like you make more if you start collecting benefits later. But that's not necessarily the case. You should weigh some other factors.

By starting benefits at 70 rather than 62, the woman in our example received \$633 more per month. But she'd also have passed up 96 months of payments. At \$1,412 a month, that's \$135,552.

It would take about 214 months -- nearly 18 years, until she was 88 years old -- for the larger monthly income to make up for what was lost in those eight years between 62 and 70.

For many people, deciding when to start benefits depends on whether they need the money. According to this reasoning, if you don't need it at 62, you might as well wait and get the higher payment.

Not so fast. Suppose you received \$1,412 a month for eight years and invested in a mixture of stock and bond mutual funds that paid, say, 6 percent a year. After eight years, you'd have \$173,434. It would take 274 months, or nearly 23 years, for the higher benefits achieved by waiting to start receiving benefits to outweigh the income and investment earnings lost during those eight years.

Another factor to consider -- will you continue working after you start receiving benefits? If so, you may pay a penalty. People who have not reached "full retirement age," which ranges from 65 to 67 depending on when one was born, can lose \$1 in benefits for every \$2 they earn above an annual limit -- \$11,520 in 2003.

The penalty is much smaller the year you reach retirement age, and there's no penalty, no matter how much you earn, once you hit full retirement age. Your statement will have your full retirement age.

It's also important to consider your tax situation. If, after you begin collecting Social Security, you have other taxable income, part of your Social Security benefit can be taxable. The Social Security Administration says about 20 percent of recipients pay some tax on benefits.

People filing as individuals who have combined income between \$25,000 and \$34,000 must pay income tax on half of their Social Security Benefits. Those with income of \$34,000 and above can be taxed on as much as 85 percent of their benefits.

Couples filing joint returns pay tax on half of their Social Security benefits if their combined income is between \$32,000 and \$44,000. And those with higher incomes can pay tax on as much as 85 percent of their benefits.

Bottom line: When your annual Social Security statement comes, take a close look. It's easy to mistake for junk mail. It comes in a white unstamped envelope with a green return address for the Social Security Administration. Look for it about three months before your birthday. Make sure all the data in the statement is correct, including your Social Security number, birth date and earnings history.

You may find your own figures are quite different from the ones in my example. In mine, for instance, waiting those extra eight years to start benefits would increase the monthly check by more than \$1,100, according to the statement estimates.

Be sure to note the age at which you'll be eligible for full benefits -- those are not the same as the maximum you can get by postponing the start of benefits until you are older.

The Social Security Administration has an excellent Web site at www.ssa.gov, and you can order free publications by calling (800) 772-1213. If you didn't get your statement or misplaced it, order a replacement on the Web or by phone.

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