May 5, 2010

How to Best Time Social Security Benefits

Advisors need to review the financial implications of when clients start taking these benefits as part of a broader discussion about guaranteed income.

Today, half of retirees start claiming their benefits as soon as they become eligible, at age 62.

In fact, the Social Security Administration recently reported that the unprecedented levels of first-time claims has contributed to Social Security payouts exceeding revenue for the first time in history this -- six years earlier than previously projected.

Many retirees are unaware of the significant financial disadvantages of claiming benefits at age 62. Widely unknown, individual benefits can rise by one-third, simply by waiting until age 66. And for those who can forgo taking their Social Security until age 70, the monthly benefit rises by 75 percent.

"One of the most important questions that someone planning for retirement must address is what age they will begin claiming their Social Security benefits," said Insured Retirement Institute (IRI) President and CEO Cathy Weatherford in a statement.

"Millions of Americans may not be aware of the financial advantages most people gain by waiting even a few years to begin receiving their benefits," she explained. "It is vital that those nearing and planning for retirement carefully determine and review the financial implications of taking their benefit at a specific age. Doing so will help to frame discussions about other ways to plan for guaranteed income for life."

The client's situation is a key factor in the timing decision, of course.

Some clients need the funds for living expenses and will collect at the earliest date. But even those with sufficient income might not wait until age 70.

Leslie H. Beck, CFP, CFA, with Beck Investment Management in Palo Alto, Calif., says that her current clients don't need Social Security -- it won't change their quality of living so they're able to wait until age 66 or beyond.

Nonetheless, she's observed that they do consider other factors, particularly mortality risk, when deciding.

"I always add the caveat that while the numbers may show that it's best to wait over a period of time, the key determinant here is that you have to live longer than the breakeven period," Beck said in an interview.

"And we laugh a little bit about it;" she explained, "but, at the same time, you can just see them think about whether they'll make it or not. Invariably after we've had that discussion and I come back and check with them on what they decided to do, they all go ahead and take the money."

To help guide those planning for retirement on when it's best to start taking their Social Security benefits, IRI has developed a primer now available online, featuring commentary from Alicia Munnell, the director of the Center for Retirement Research at Boston College, entitled "Getting the Most out of Social Security."

In addition, "The Social Security Claiming Guide" is online. And a useful quick benefits calculator is available at the Social Security Administration website.


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