When Should I Begin Collecting Social Security?

By Author: Paul Sutherland
Total Articles: 13
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When we explain the financial planning process with our clients, one of the most frequent questions asked by clients nearing retirement age is: Should I begin collecting Social Security benefits at age 62?

There is no right time to begin collecting Social Security benefits, but the age at which you begin receiving benefits will affect how much retirement income you will receive over your lifetime, so you should weigh the consequences carefully. Keep in mind that if you collect Social Security before your full retirement age, your benefit will be permanently reduced. Depending on the year you were born, you'll receive between 25% and 30% less per month if you collect benefits at age 62 than if you wait until full retirement age. However, this doesn't necessarily mean that collecting benefits at age 62 is unwise. In fact, unless you live to an especially old age, you may actually end up with more money if you start collecting Social Security benefits at age 62 than if you wait until full retirement age, because you'll receive more benefit checks.

There are, however, good reasons to wait until full retirement age ...
... to start collecting benefits. For example, if you work full-time past age 62, you'll have the opportunity to increase your eventual retirement benefit, particularly if you are in your peak earnings years, because your benefit will be figured using your 35 highest earnings years. Additionally, if you'll barely scrape by after you retire you may want to receive as much as possible from Social Security each month.

If you begin to receive Social Security retirement (or survivor's) benefits before you reach full retirement age, money you earn over a certain limit will reduce the amount of your Social Security benefit. In 2010, your benefit will be reduced by $1 for every $2 of earnings in excess of $14,160.

Other things to consider include whether other people will be eligible to receive benefits based on your work record, your estimated life expectancy and if you have other income to support you if you delay taking your benefits.

On the flip side, if you delay collecting Social Security after full retirement age, you will receive a bigger check every month. However, how much bigger depends upon what year you reach full retirement age and how long you postpone collecting benefits. The chart below shows how much more you'll receive for every year you delay collecting benefits past your full retirement age, based on the year you were born (up to age 70, when you automatically start receiving Social Security).

The Social Security Administration has several online benefit estimators available that can help you make an informed decision. In addition, our advisers at FIM Group are always happy to answer your questions or discuss your unique situation.

I have also posted on our website, www.fimg.net, some unusual strategies for claiming Social Security benefits that might help you maximize the amount you can claim under the program.

Dreams and Nightmares

When I was a kid, my dad, older brother and I took a summer road trip through the Southwest desert. When my dad wanted to stop for the night he would just search for a cheap motel and one night we drove for hours unable to find any vacancies. Apparently, the Army was engaged in desert training, but soldiers were finding rattlesnakes in their tents and sleeping bags, so the soldiers were stacked in the local motels. Many investors are sleeping in rattlesnake-infested areas unaware of the dangers. Interest rates on CDs could remain low for years to come, as evidenced by Japan, which has endured nearly 19 years of recession, super-slow growth and deflation. Imagine needing 5% income on your portfolio and getting only a 2% yield - leaving you with a decreasing principal, a decreasing yield and, therefore, a decreasing amount to invest. The insidious decline in value of the 2% yielding portfolio would be further eroded by taxes and (potential and real) inflation. It's a nightmare that many do-it-yourself 2% invest
ors will wake up to in the future. Better to sleep well and dream of nice income generated by entrepreneurial companies the world over. Thankfully, just like the U.S. military, my dad had the sense of placing us in a safe hotel room, so we could dream of the magnificence and splendor of the Grand Canyon and the Rocky Mountains rather than worry about rattlesnakes.

Don't Worry Be Happy

In all sincerity, our goal at FIM Group is to help our clients sleep well and be happy. Our hope is that you will delegate the worry to us and regard your role as making sure we are rational and realistic in our portfolio construction. Having managed global portfolios for 25 years, I don't shy away if the financials are in yen, Euros, Australian or Singapore dollars, francs or ringgits. I know the difference and realize that Singapore is much different than Thailand, even though they are both democratic, smaller, Asian economies. Today the investing world wants to paint the world as U.S. and non-U.S., and that is just plain illogical. There are many great U.S. companies that have significant earnings from overseas. For example, GE, Johnson & Johnson and DuPont earn more than 50% of their revenues from non-U.S. operations. They have savvy managers who understand where opportunity exists in the world and invest accordingly. You can bet they are not buying 2% CDs. fimg0z

Article Source: WhyisFinancialPlanningImportant.net