On taking early Social Security

PERSONAL FINANCE

October 21, 2007|By EILEEN AMBROSE

The day that policy wonks warned about and politicians have tried to ignore is here: The nation's first baby boomer has signed up for Social Security benefits.

Kathleen Casey-Kirschling was born just after midnight on Jan. 1, 1946, and last week applied for Social Security benefits starting in February. The retired teacher, who lives on Maryland's Eastern Shore, is healthy and doesn't need the money now. And she could get a bigger check by waiting until her full retirement age of 66. So why the hurry? "It's accessible now, and the way I feel about it, five years from now I could be gone," she says.

Should others of the 78 million or so baby boomers follow her example?

Not necessarily. In fact, many retirement experts suggest that healthy baby boomers delay taking benefits until their full retirement age or later, given the likelihood they could live into their 90s and beyond. Waiting guarantees them a larger monthly benefit that could be vital in those later years after other savings are spent.

Over the next 20 years, an estimated 10,000 boomers a day will become eligible for benefits. If you're among them, you'll need to look long and hard at your health, finances and how long you expect to work to figure the right time to start benefits.

And often it's not just about you. Married couples need to consider the impact that taking Social Security early will have on a spouse's survivor benefit.

When Social Security was created in the 1930s, benefits started at age 65. In the 1950s, the government began allowing women to take benefits at 62 so they could retire with their husbands, who were usually older. Men became eligible for early benefits in the 1960s.

Over time, 62 became the target retirement age. About half of men and women eligible for Social Security benefits today take them at 62.

On average, taking benefits at 62 or later isn't supposed to make a difference in total lifetime benefits. The theory is that you either get smaller checks for more years or bigger checks for fewer years.

For example, a boomer born in 1946 and earning $60,000 would receive $1,153 a month if beginning benefits at age 62, $1,620 at age 66 and $2,249 at age 70.

Still, there are cases when the right move is grabbing benefits early. Those who can no longer work at 62 and can't afford to live without Social Security may have no choice. Choosing early benefits is wise for those with a short life expectancy.

Jim Watkins, a retired physical education teacher in Howard County, turned 62 in August and received his first Social Security check last week. "Part of my decision is because I have some health issues," he says. Longevity also isn't in his family's genes. His father died at 47; his aunt at age 52.

Some suggest retirees can come out ahead by taking early benefits and investing the money. "I've never seen anyone able to do that," says Joel Ticknor, a financial planner in Reston, Va. What usually happens is Social Security gets mixed with other dollars and retirees spend it, he says.

If the odds favor your living to a ripe old age, you would be better off delaying benefits.

Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries, figures those who delay Social Security pull out ahead in total lifetime benefits if they live past 80.

And millions will. A 62-year-old woman today has a life expectancy of 86.5 years, Gebhardtsbauer says. For men, it's nearly 84.

"It's not like this big cliff that everyone dies at life expectancy," he adds. "A huge proportion are going to live a lot longer."

Laurence Kotlikoff, an economics professor at Boston University, says delaying benefits until 70 can significantly raise your standard of living in retirement. That's because you'll be able to spend more of your savings in the early years knowing you will get a larger Social Security check later, he says.

But people are too focused on how they would feel if they died before collecting Social Security, Kotlikoff says. "If you're dead, it doesn't matter," he says. They should be thinking how happy they'll be at 92 that they waited to take Social Security, he says.

There are other reasons to delay benefits.

If you're still working, Social Security benefits can be temporarily reduced if you earn above a certain limit. And if you have other income, "taking Social Security benefits can put you in a higher tax bracket," Ticknor says.

Delaying benefits also can boost survivors' benefits, where widows and widowers can receive a deceased's higher benefit in place of their smaller check, says Alicia Munnell, director of the Center for Retirement Research at Boston College.

Men tend to earn more in their careers than women, and their Social Security benefits are usually larger. They also die earlier. To maximize his wife's survivor's benefit, a husband should work longer and delay benefits as long as possible, Munnell says.

Even if delaying benefits makes sense, some boomers will likely take them early out of concern over Social Security's long-term solvency.

But pension experts expect that Congress will tackle Social Security's problems after the presidential election. And whatever the solutions, they likely won't have a significant impact on current retirees or this first wave of retiring boomers, experts say. Even President Bush's proposal for private accounts excluded those 55 and up.

First boomer Casey-Kirschling isn't worried. "I think it will get fixed," she said.

Are you among the first wave of baby boomers to hit 62 next year? We'd like to talk to you about your plans and how you envision retirement. Contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com

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