Timing Social Security

Q: I’m a gay man in my 60s, and I’m considering my options for when to claim Social Security. I’m not sure I understand the best time to begin collecting. Can you help?

A: One of the few things you can control about Social Security is when to start collecting it. Should you take it when you become eligible at age 62, wait until “normal” retirement age (a function of your birthdate) or consider delaying your benefits past normal retirement age? Here’s some information to help guide you forward.

To help you make this decision, consider that, on average, Americans are living longer than ever before. Clearly, the longer you expect to live, the more sense it makes to delay taking Social Security. But of course, each person’s circumstances and needs are different. Here’s a look at how timing can affect the benefits you receive.

Early benefits

The soonest you can collect Social Security is age 62. But taking payments at 62 will result in a permanently reduced benefit, ranging from a 20-percent reduction for people born in 1937 up to 30 percent for those born in 1960 or later. You may want to consider early benefits if you need income but prefer to leave your investment portfolio intact, or if you intend to invest the benefits to try to earn a more competitive return (though there’s no guarantee you will do so).

Full Benefits

Eligibility for full Social Security benefits varies according to the year you were born. Depending on how long you worked and how much you earned over your lifetime, the maximum benefit you could collect at normal retirement age (65 years and 10 months) is $2,185 per month in 2008. Consider waiting for full benefits if you plan to work until age 65 or if family history and good health may lead to an above-average life expectancy. Refer to the Social Security Web site (www.socialsecurity.gov/OACT/quickcalc/when2retire.html) to calculate your “break-even” age, when the accumulated value of higher benefits from postponing retirement will start to exceed the value of lower benefits from choosing early retirement.

Delayed benefits

If you continue working beyond your normal retirement age, you will be eligible to collect a permanently increased Social Security benefit when you do retire. Approximately 8-percent more per year will be added automatically to the permanent benefit amount for every year you wait. Delaying benefits past age 70 will generally add nothing more to your monthly benefit.

To help assess your situation, refer to your personalized Social Security statement, which estimates the monthly Social Security benefits you may qualify for. Go to www.www.socialsecurity.gov/mystatement for a copy of your statement. Decisions regarding retirement, including when to take Social Security, can have a significant impact on your financial security.

Also, remember you will not automatically receive Social Security benefits. You must apply for the benefits, which can be done online, by calling (800) 772-1213 or by visiting a Social Security office. And remember, benefits are taxed as ordinary income in the year of payment.

Jeremy Gussick is a financial advisor with Smith Barney in Center City, focusing on financial and investment planning for the LGBT community. He serves on the boards of several local LGBT organizations, including the Delaware Valley Legacy Fund, the Greater Philadelphia Professional Network and the Independence Business Alliance, Greater Philadelphia’s LGBT chamber of commerce. OutMoney appears monthly. If you have a question for Jeremy, he can be contacted at (215) 238-5849 or at [email protected]. Smith Barney does not provide tax or legal advice, and it is important to consult with a tax or legal advisor before investing.

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