Millions of baby boomers are facing the decision of when to start collecting Social Security.
And although two-thirds of the people eligible are opting to start taking their Social Security benefits at age 62, rather than waiting to reach their full retirement ages at 65 or 66, the decision is not simple. Financial planners and retirement experts say there are a number of factors to consider before pulling that trigger.
The decision comes down to two questions: Are you prepared financially for retirement? Are you ready for the lifestyle change?
"There's not a magic answer," said Burk Rosenthal of Rosenthal Retirement Planning in Fort Worth, Texas, who said he's getting plenty of calls on when to take benefits.
First, those who start taking Social Security at 62 will get smaller checks for the rest of their lives by beginning the process before retiring.
The percentage of benefits lost varies by age. People born from 1943 to 1954 have a full retirement age of 66. By taking Social Security at 62, they lose 25 percent of the monthly payment. Starting for people born in 1955, that loss increases on a graduated scale up to a 30 percent reduction for those born in 1960 or later.
Rosenthal said it would still take 12 years of full benefits starting at age 65 or 66 to catch up to someone taking early withdrawals of Social Security even at the reduced amount, so you should consider how long you think you may live.
To estimate your life span, look at how long your parents and grandparents lived and your lifestyle habits. A good online calculator is at livingto100.com.
Another issue to consider is whether you want to work some during your retirement years. Although those at full retirement age can earn as much as they want in a job and still receive full Social Security benefits, there are restrictions during the early withdrawal time.
People who withdraw before their full retirement age can earn only $12,480 this year before Social Security begins deducting from their monthly checks. The Social Security Administration takes $1 from your benefit payment for every $2 over the limit that you earn during this time period. That earnings amount goes to $12,960 in 2007.
But that earnings limit applies only to wages (or net profit for the self-employed), said Tom Clark, public-affairs specialist for the administration's Fort Worth office. Income from pensions, stock dividends, investments or even rental property is unrestricted, he said.
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