We assume that many of our readers are already retired and collecting Social Security payments, or soon will be. Our clients often ask us when they should start taking their benefits. What few people know, however, is that after you have started receiving Social Security payments, you can still change your mind. It’s called Social Security “reset”. In some cases it may make sense. We’ll discuss that in our next blog – Part II of this series.

First, let’s talk about when you should start taking your Social Security payments. Obviously, the longer you wait the greater your monthly payments will be. If you start receiving payments at age 62, you will receive an amount that is less than what you would receive if you wait until your full retirement age (FRA). If you outlive your life expectancy, then waiting till FRA could be very valuable. On the other hand, if you wait until your FRA and then die soon after, you may come out on the short end.

The Social Security system is set up so that from an economic standpoint, it should make no difference when you start receiving your Social Security benefits. Actuarially, the present value of the stream of benefits you receive should be the same regardless of when you start taking payments, assuming you live to your projected life expectancy.

To start with, you should consider your health and family history. If everyone has lived well into their 90’s and you are in top notch health, you should consider waiting until you reach FRA. On the other hand, if you are not very healthy and your family has no history of longevity, you might want to consider starting your benefits at age 62.

Also, if you plan to work full time until FRA in order to have enough funds for retirement, you would be best to wait on starting benefits, since they would be reduced by one dollar for each two dollars you earn above the current limit of $14,160. Once you reach FRA, there is no reduction in benefits received. If you work part time while receiving benefits, there is no reduction as long as you earn less than $14,160.

Obviously, if you are forced into an early retirement and need the Social Security benefits just to survive, you may have no alternative but to start receiving benefits at age 62. If your health outlook and longevity are good, and you have other sources of income you can rely on (including the possibility of part-time income), you should wait as long as possible in order to maximize the amount of your benefits.

If you are married and one spouse is significantly younger than the other major wage earner of the household, it likely makes sense for the major wage earner to wait until FRA or longer before starting benefits. Assuming the older spouse dies first, the lower-earning surviving spouse will receive a significantly higher spousal survivor benefit over the remainder of his/her life expectancy. Health and longevity outlook of both spouses still need to be considered.

One final consideration that is difficult to evaluate, is how legislation may affect the decision of when to start taking benefits. With Social Security System funding in question, future benefits could be cut, FRA’s extended and Social Security taxes increased by coming legislation. While it’s unknown what the impact might be, one could argue that taking benefits earlier rather than later might be advisable.

If you are unsure of what to do, we recommend you discuss the issue with a financial advisor.