All too often people take their Social Security benefit as soon as they are eligible, which is typically age 62.   While additional income is always appealing, the reality may be that waiting is in your best interest.  The answer to, “When to take Social Security” can be complicated.  Below are listed five key questions to guide you to the answer right for you.  Social Security is no longer routinely sending “Earnings Benefits Statements”, but you can access your personal information online at www.ssa.gov, which is a great source for getting specific information about your situation.

• Are you still working?

For those who retire before their “full retirement age” (depending on year of birth - between ages 65 and 67), Social Security benefits are reduced $1 for every $2 you earn above the annual limit, which is $15,120 in 2013.  The reduction is less in the year you reach your full retirement age.  There is no reduction for working once you reach your full retirement age. 

• What are your cash flow needs?

This may be the toughest question to answer, everyone could use more cash.  However, taking Social Security at 62, while helpful in the early years, would significantly crimp your cash flow in later years.  For example, if the “Primary Insurance Amount”, the amount of Social Security benefits at full retirement age is $1,000 for someone turning 62 this year, the following would be the benefit received (assuming no increases for inflation):

$1,320/month ($15,840/year) at age 70

$1,000/month ($12,000/year) at age 66

$750/month ($9,000/year) at age 62

The benefit at age 62 is 43% less than waiting just 8 years later until age 70!   

• What are your assumptions about longevity?

The simple answer is – if you are likely to live at least until you are mid-80’s, it may be advisable to delay taking Social Security.  The benefits you will receive over your lifetime will be greater by starting at an older age with a larger amount, than taking a smaller amount for more years.  However, if you are retired anytime between ages 62 and 70, you will need to rely on other resources, while delaying your Social Security benefit, so your own break even calculation is more complicated. 

• Are you (or have you been) married?

If you are married, you are eligible for EITHER your own benefit or spousal benefits, which are 50% of your spouse’s, whichever is higher.  Individuals who are divorced (but were married for at least ten years), or are widowed (and were married for at least nine months) are also eligible for spousal benefits or their own. There are numerous strategies for couples.  One example uses a common strategy assuming two spouses both have their own benefit and they both turn 66 this year.  The strategy is called “file and suspend”.  One spouse files for their benefit at age 66, but suspends its collection.  The second spouse files ONLY for a spousal benefit based on the earnings record on the first spouse.  Both spouses can then let their benefits grow and start their benefits on their own records at age 70 – while receiving some Social Security for the next 4 years.  Only one spouse can apply for benefits and have the payments suspended.

• Are you or will you receive a pension that is subject to the Government Pension Offset or Windfall Elimination Provision?

For workers receiving a pension where Social Security tax was not withheld, there may be a reduction in benefits known as the Windfall Elimination Provision (WEP).  Spousal benefits for workers receiving those types of pensions may be subject to the Government Pension Offset (GPO).  The Social Security website has guidance to calculate your benefit. 

Deciding when to take Social Security can be complicated and depends on many factors including when you stop working, other resources available to you and your prospects for longevity.  A good start is Social Security’s website, which has several calculators to assist you, the link is www.ssa.gov/planners/benefitcalculators.htm