Everyone dreams of retiring earlier and being able to live longer to enjoy it. Well, you no longer need to dream about it. The cut-off age of 65 need not apply according to a Bureau of Labor Statistics study entitled, "Trends In Retirement Age By Sex, 1950-2005" (2006). The study found that the age of final retirement has fallen around six years for both men and women since mid-century - and this trend is expected to continue. However, Social Security benefits are not paying out fully at the same falling age rate. In fact, they are increasing the age limit to receive full benefits. In this article we'll show you how to make the most of your working years and how to make sure your Social Security benefits meet up with you at retirement.

Longer Lifespan
According to the Centers for Disease Control estimates, as of 2007, the average American's life expectancy was 77.9 years. This number has climbed every year it has been recorded since 1900, and has increased by seven years since 1969. Employers have taken note of the above statistics and estimates, which partly accounts for the steep decline in defined-benefit plans and the increase in defined-contribution plans as shown in the following Bureau of Labor Statistics.

This means that many workers may not have the guaranteed stream of income that previous retirees enjoyed. (For further reading, see Determining Your Post Work Income and The Demise Of The Defined-Benefit Plan.)

Social Security Administration Responds
The original Social Security Act of 1935 set the minimum age for receiving full retirement benefits at 65. Congress, however, changed this after discovering improvements in the health of older people and increases in average life expectancy.

The 1983 amendments phased in a gradual increase in the age for collecting full Social Security retirement benefits from 65 to 67 while reducing the percentage of benefits available at age 62.

Year of Birth Full Retirement Age Age 62 Reduction Months Total % Reduction
1937 or earlier 65 36 20.00
1938 65 and 2 months 38 20.83
1939 65 and 4 months 40 21.67
1940 65 and 6 months 42 22.50
1941 65 and 8 months 44 23.33
1942 65 and 10 months 46 24.17
1943-1954 66 48 25.00
1955 66 and 2 months 50 25.84
1956 66 and 4 months 52 26.66
1957 66 and 6 months 54 27.50
1958 66 and 8 months 56 28.33
1959 66 and 10 months 58 29.17
1960 and later 67 60 60.00
Figure 3: A gradual increase in the age for collecting Social Security benefits
Source: http://www.ssa.gov/pressoffice/IncRetAge.html

Your Choices
You can start taking reduced Social Security retirement benefits as early as age 62. If you wait until full retirement age, you're entitled to more money each month. And when you postpone payments until age 70, your checks will be fatter yet. (To calculate your benefit estimates, go to the government's Social Security Quick Calculator.)

So where is the breakeven point? And how long would you have to live to make delaying benefits worthwhile? As a hypothetical example, let's assume that you are debating whether to take benefits at age 62 or 66 with the income options as offered above. According to the Social Security Administration, if you expect to live to at least age 78 and one month, you would be better off waiting to begin taking the benefits. If you hold off until age 70 to get the maximum benefit, uou'd have to live until age 79 plus nine months to come out ahead.

Reasons to Take Social Security Early
The most common reasons that people opt to take their Social Security benefits early include:

  • It is the only way they can afford to retire.
  • They have a short life expectancy.
  • They can receive a better return on the money by investing it themselves.
  • They want to get something from the system before it goes bankrupt.

Reasons to Delay Your Benefits
Besides the fact that you'll receive a higher income by waiting until full retirement age or later, there are two other points to consider.

Survivor Needs
Survivor benefits are based on the original Social Security recipient's benefit. Consequently, if your spouse is expected to live a long time, taking reduced benefits could affect his or her income long after you die.

Income Taxes
Tax planning is an important segment of retirement planning, but some people may not realize that Social Security income could be taxable.

To determine whether any of your benefits will be taxable, take half of your projected Social Security plus all your income from other sources, including tax-exempt interest. If you are married and file a joint return, you must combine your incomes and your Social Security. (For related reading, see The Benefits Of Having A Spouse.)

Still Can't Decide?
Suppose that you know you should hold off taking Social Security, but you still like the idea of a steady, monthly income. One strategy could be to delay the benefits and buy a term-certain, fixed immediate annuity. You'll get an income that's guaranteed by the issuing insurance company to make up for the missed Social Security checks. Then, when you turn 70, the annuity payments will stop and the Social Security payments will begin.

However, because Social Security might have cost of living adjustments (COLA), you may want to include an inflation rider within the annuity. That way you'll receive an annual increase in your annuity payments. (For more insight, see Inflation-Protected Annuities: Part Of A Solid Financial Plan and Inflation-Protected Securities - The Missing Link.)

All Things Considered
Before you make a decision as to when to begin your Social Security retirement income, there are few things you should consider. These include your:

  • Health
  • Tax status
  • Survivors' needs
  • Future income needs
  • Current income needs

Although Social Security was never meant to be a full replacement for your pre-retirement income, it can play an important part in your retirement planning and you should try to use it to your full advantage whether you retire early or not.

For more information, be sure to read our Introduction To Social Security.

Related Articles
  1. Savings

    What Your Credit Score Means for Your Love Life

    Wondering if your significant other wants to commit and is reliable? The Fed might have the answer.
  2. Mutual Funds & ETFs

    Top 3 VALIC Funds for Retirement Diversification in 2016

    Learn about the VALIC fund family, its performance relative to its peers and the top three VALIC funds to consider for retirement diversification in 2016.
  3. Your Clients

    Tips for Making Your Nest Egg Last Longer

    If you’re trying to figure out how to make your hard-earned nest egg last, there’s one piece of advice that stands above the rest.
  4. Retirement

    The Gay Couple's Guide to Social Security Benefits

    The recent U.S. Supreme Court decision on marriage equality affords same-sex couples access to Social Security benefits. Here's how it works.
  5. Personal Finance

    10 Ways to Protect Your Social Security Number

    Identify theft thrives in part because people must give their Social Security number for so many types of interactions. How can you protect yourself?
  6. Mutual Funds & ETFs

    Top 3 Lazard Funds for Retirement Diversification in 2016

    Learn about Lazard Asset Management, its long history of strong performance and the top three Lazard funds to consider for retirement diversification.
  7. Retirement

    Early Out: A Realistic Plan to Retire Younger

    If you want to retire ahead of schedule, it'll take some extra planning.
  8. Mutual Funds & ETFs

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  9. Retirement

    6 Robo-Advisors That Require Little to Start

    There are many well-regarded robo-advisor options that come with minimum investment amounts. Here are snapshots of a handful of them.
  10. Mutual Funds & ETFs

    Top 3 Voya Funds for Retirement Diversification in 2016

    Learn about Voya Investment Management's mutual fund offerings and the three Voya funds to consider for retirement diversification in 2016.
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. What is the maximum I can receive from my Social Security retirement benefit?

    The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, ... Read Full Answer >>
  3. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  4. What's the difference between Social Security Disability Insurance (SSDI) and Supplemental ...

    Disabled persons can receive payments through two programs: Social Security Disability Insurance and Supplemental Security ... Read Full Answer >>
  5. How Long Should I Keep My Tax Records?

    The Internal Revenue Service (IRS) has some hard and fast rules regarding how long taxpayers should keep their tax records. As ... Read Full Answer >>
  6. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center