When Should I Take Social Security?

Social Security is one of the most important aspects of retirement, and if you're like most Americans, you started considering it long before you were old enough to qualify for it.

But while Social Security is meant to make your retirement easier, the process of actually collecting it can be pretty complicated. You might find yourself inundated with questions about the program, best practices, and how might optimize your benefits. Don't sweat it! The Motley Fool's Dan Kline is here to do the heavy lifting and answer all your questions -- and maybe a few you hadn't thought about yet.

A full transcript follows the video.

Narrator: Hi, there! I'm Motley Fool contributor Dan Kline and on this episode of FAQ we're looking at when you should take Social Security.

Before we get into when you should claim, let's look at when you can claim. You can begin claiming at 62, but to get your complete Social Security benefit you need to wait until your full retirement age. That's 66 for people born between 1943 and 1954. For anyone born between 1955 and 1959, you'll have to wait a few more months and for anyone born after 1960 full retirement age has been raised to 67.

To further complicate things, you don't have to retire when you hit full retirement age and it actually pays not to. If you can wait at least one extra year after 66 -- or 67 -- depending on which one is your full retirement age, you'll get an extra 8% in benefits for every year between 66 (or 67 depending upon your age) that you wait to submit your claim until the age of 70.

In addition to those calculations, there's also different considerations for a married person who did not work long enough (or make enough money) to earn much of Social Security check. People in that category can retire at full retirement age with half of their spouse's benefit. If, however, they choose to retire at 62 they that amount can get reduced by up to 35% -- 8.33% for each of the first 3 years and 5% for every year on top of that.

It's worth noting that the spouse does not get a lesser benefit of his or her own when this claiming method is used. And, should the higher-earning spouse die -- the surviving member of the couple can switch from the half share to a survivor's benefit, which is generally the full amount the spouse was collecting.

That, of course, only covers when you could start collecting Social Security not when you should. To decide when you should take benefits you should consider the following things:

1. How long can you continue working?
2. How much do you have saved?
3. What will your expenses be in retirement?
4. Are you in good health?

Deciding when to collect Social Security requires taking an honest look at your finances, your savings, your work situation, and your post-retirement expenses.

The earlier you file, the less you get but it is a sliding scale. You lose 6.67% a year for the first three years if you retire between 62 and 65. For the year or two years after that (depending upon whether full retirement age is 66 or 67 for you) you'll lose 5% for each year you claim your benefits early (with a maximum loss of 30%).

Simply put, you collect more money each month if you can put off retirement until 70 but that may not be the right move for everyone.

If, for example, you have saved enough that Social Security won't be an important part of your retirement income, but you're not in great health, you may consider claiming at 62 to maximize the amount of years you collect.

That scenario, sadly, does not apply to most Americans. In fact, a recent survey from TransAmerica showed that 66% of American seniors expected Social Security to be their principle form of retirement income. That's a scary number since Social Security generally only replaces about 40% of an individual's pre-retirement income.

For most Americans, unless you have saved well for retirement or are in poor health, it makes sense to delay taking benefits for as long as possible. If you keep working until full retirement age you will have put in four or five extra years where you are earning money and not spending any of your retirement savings. If you can keep working until 70, you will increase your social security payout by 24 to 32% depending upon your full retirement age -- and that's a pretty huge difference.

Of course, if you can't work anymore or have stopped working because you've planned properly for retirement then it may make sense to claim earlier. The same is true if your health prognosis suggests you don't have that many years ahead of you.

When to claim Social Security is a very personal question but the broad answer for the average American with no major health problems is to put it off as long as possible.

If you wait you can maximize how big your monthly check will be and, hopefully, you'll live long enough to collect more than you would have had you taken a smaller check sooner.

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