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When Taking Social Security Early Is a Big Mistake

When to take Social Security is a critical decision every retiree must make, and given the tough economic times lately, many retirees look closely at taking benefits early in order to supplement their income. But sometimes, that's not the right move, and you'd be much better off waiting longer before starting to get monthly payments.

In the following video, Motley Fool investment planning editor Lauren Kuczala talks with longtime Fool contributor and retirement planner Dan Caplinger about three situations in which taking early benefits can really cost you. Dan notes that if you're still working and take Social Security, you can end up having to forfeit some of your monthly payments if you earn more than a certain amount. In addition, if you're currently in a high tax bracket but expect your tax rates to fall in the future, waiting can save you thousands in taxes, as up to 85% of Social Security benefits count as taxable income if you earn more than a certain amount of income. Finally, taking Social Security before you have a full 35-year work history can cost you a lot in benefits. Dan gives some guidance for people in all three situations to consider in order to make the best choice for their situation.

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Read/Post Comments (17) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2013, at 11:15 AM, Msbunny2013 wrote:

    This is one HUGELY biased article. Taking SS early can be a boon beyond this ridiculous scenario for MANY. Each situation is DIFFERENT and must be WEIGHED. You should NEVER discourage people from collecting early when you have no clue of their circumstances. I'm a widow - take my husband's higher amount and started at 62. I'm 66 now and IT'S THE BEST FISCAL MOVE I EVER MADE. You guys are full "of it".

  • Report this Comment On May 19, 2013, at 11:17 AM, ImtheBaldEagle wrote:

    Nothing new here. This info has been noted time and time again. It's almost always better to take early retirement in the current economy. With the way congress and obama is - so wishy washy - SS could be cut significantly. They look at it as a benefit or handout and not as a DEBT the government owes those who paid into it.

  • Report this Comment On May 19, 2013, at 11:41 AM, lm1b2 wrote:

    The main reason that you should retire as soon as you can is simple,you have no way of knowing how long you are going to live.Retire as soon as you believe you have the Finances to do so,don't get greedy,you may regret it,life is to short !

  • Report this Comment On May 19, 2013, at 12:26 PM, rebeang wrote:

    It isn't hard to do the math. If I retire at 62 and live to 77 I will, over that time period, collect more social security benefits than if I retire at 67 and live to 77 or retire at 72 and live to 77. Fairly easy to do that math and see what is the best option! Not going to continue to work myself into an early grave! Really - the folks who write these articles must think we have no common sense or calculators at our disposal.

  • Report this Comment On May 19, 2013, at 1:15 PM, VegasSmitty367 wrote:

    Do the math yourself. If you take it early it comes to the same amount overall if you base it on your life expectancy.

  • Report this Comment On May 19, 2013, at 2:06 PM, misakowalt wrote:

    Wife and I took our SS at 62. We are now 66. Never looked back. Based on what I paid in over a lifetime, I'll break even about age 76 - IF I live that long.

    Part of my decision was that every one on my father's side passed not later than age 60 (father was 60 when he passed, his two sisters and brother were in their 50s). On mother's side, oldest was 74, but rest died in their mid 60s with a couple in their late 50s (smokers except the 74 year old).

    With that gene pool, I decided that it was smarter to enjoy spending some of my SS contributions over a lifetime than letting Congress use it for something else!!!

    I would say that if a person had a high paying job in his/her 60s where SS payments do not matter, wait until 66 to draw. Otherwise, take when available. I do not see it as "early" withdrawal. I earned the money that is in the SS trustfund. I see it as drawing when "I'm ready to draw it". It is my money. Congress set the rules and I decided to take some of my money back while I am still able to do so within those rules!

  • Report this Comment On May 19, 2013, at 2:25 PM, skeeb wrote:

    My father died at age 62. He drew SS for 6 months.. Will probably draw SS in 7 months when I turn 62.. It's my money, I want it now... If i live that long. Draw SS at 62 and work the hours you want..That's what I will do..

  • Report this Comment On May 19, 2013, at 2:28 PM, gailretiree wrote:

    That would mean I'd have to stay in Utah until I'm 67. Are you kidding? I want out of this state. I'd rather retire early and have some quality time. My mother retired at 62 and died at 84. She had a quality life until about age 74. Supposed she waited until she was 70. She would have had four quality years. Also, who's to say there will be work for me. I'm hoping I can hang in there until I'm 62. I'm healthy and able to work but maybe no one would want me.

  • Report this Comment On May 19, 2013, at 2:38 PM, VRSEFgold wrote:

    This article is all B.S.

  • Report this Comment On May 19, 2013, at 2:48 PM, pds137 wrote:

    Why Motley's Fools articles always fool me in clicking on them thinking I'll find real stuff but they always end feeling like teaser ads, or hooks for something else, Motley Fools report or some partner newsletter.

    I think giving honest articles once in a while without making readers feel fooled for clicking on the link, would be much better business model, me thinks...

  • Report this Comment On May 19, 2013, at 4:17 PM, SimonFudpucker wrote:

    Look at the picture of the guy making the comments. He does not look old enough to be a "long time contributing person". Take YOUR money as early as you can, I started at 64 yrs 10 months because the company decided I wanted to retire. NO REGRETS!!!!

  • Report this Comment On May 19, 2013, at 7:04 PM, mikes12653 wrote:

    I wonder if Dan Caplinger and Lauren Kuczala work for the Obama Administration? I say take SS as soon as you can it may be gone in a few years!!

  • Report this Comment On May 19, 2013, at 7:16 PM, rsw8041 wrote:

    I took my social security at 62 when I was unemployed and I found out that social security helps with SSI with young children in my family and my wife so it has helped me until I found a job then I made too much and Social security took out $3,000 and lowered my monthly income so beware take it while you can, I also had health problems but thank God I will be getting Medicare A&B. Social Security says you can keep your SSN after your 66trh birthday and no more deduction.

  • Report this Comment On May 20, 2013, at 12:36 AM, pksloope wrote:

    Write an article. Videos are for people too lazy/stupid to read and made by people too lazy to write a coherent article.

  • Report this Comment On May 20, 2013, at 8:24 AM, Stgcret wrote:

    There are a few reasons why it's okay to opt for SS at 62;

    1) Longevity in your family tree is short.

    2) It represents the 3rd or 4th retirement check you receive each month.

    3) SS isn't exact guaranteed in the not so distant future.

    ....and they did not mention Spousal Benefit; My spouse for instance is 58. I just applied for SS earlier this month(will turn 62 in Aug).

    When my spouse turns 62, she can apply for her own Social Security and receive about $800 a month or wait for her own filing and file under "Spousal Benefit." (have to be married 10 yrs and also applies to ex's)

    So she would get 35% of whatever my amount is. i.e., mine =$1200 her check =$420. If she waited to full retirement age (66) she would

    receive 50% or $1000 plus 4 years of cola until age 70.

    Then at 70 she can cancel the Spousal Benefit and file for here own SS benefit at the now max due her which would be $1400 or so,plus cola...for the rest of her life.

    The math:

    $800-$420=$380 x 96 months (8 yrs)=$36480 is what is given up until age 70, then; but $40320 is received for the 8 years

    $1400 x 120 mos(20 years, to age 90)

    = $336000 - $36500 (from 62 to 70 Spousal Benefit)= @ $300000 + SB for 8 yrs= $340K + colas

    If she just retired at 62 from her own lifetime earning calculation, it would come to about:

    $800 x 12= $9600 x 28 yrs= $268800 + colas

    Through the Spousal Benefit she receives @$71,000+ cola more money. Do the math for your own circumstances and contact the SS Administration on line at ssa.gov

    Hope this helped some one.

    Regards

  • Report this Comment On May 20, 2013, at 10:57 AM, ygiagam wrote:

    Sometimes, you don't have a choice, I lost my job at 58, and after applying to hundreds of jobs, I HAD to apply and get SS when I turned 62 because, my wife and I needed the money. If congress had pushed jobs and then jobs were created, I would have waited till I turned 66, or even later to apply for SS.

  • Report this Comment On May 20, 2013, at 3:12 PM, sdchanman wrote:

    Bahahahhahaa

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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