When to Start Taking Social Security

05/09/2017 03:55 pm ET

The decision you make about when to take Social Security benefits can have a huge impact on your retirement plans and your lifetime income. It’s a decision that, once made, cannot be changed (with minor exceptions). So it’s important to know — not guess at — all of your options.

Take a larger perspective and consider not only the monthly check you receive but the overall likely benefits you will collect over your lifetime. The basic issue is whether to take Social Security at the earliest possible moment (age 62), wait until your full retirement age (likely 66-plus, depending on your birth date) or wait until the last possible moment (age 70). (To find your full retirement age, or FRA, consult the Social Security website.) And here’s a link to the Social Security two-page guide to the decision about when to take benefits.

Among the best new resources to guide you through the process is the Fidelity Social Security benefits calculator just introduced on the Fidelity.com website. After you answer five simple questions about your current age, current income, gender, family longevity status and marital status, the calculator will give you an estimate of your lifetime benefits.

Using the Fidelity calculator, I created an example of a 56 year old woman earning $75,000 per year, who had been married at least 10 years but was currently divorced and who had a family history of outliving the average longevity statistics. Here were the startling lifetime differences in the lifetime estimated benefits she might collect:

—Start at age 62: $545,100

—Start at FRA: $623,040

—Delay until age 70: $656,676

That’s a potential difference of $111,576 in additional money that could be collected over your lifetime, simply by waiting to take that monthly check. It’s a 30 percent bump in your eventual payout.

But that’s just the estimate of a payout based on the current differences in monthly checks. Once you start collecting Social Security, your base amount becomes the basis on which future cost-of-living increases are calculated. While most people aren’t worried about inflation now, it could easily recur in the future. And having a higher base check means larger monthly adjustments.

According to a survey Fidelity released along with announcing its new benefits calculator, more pre-retirees are coming to understand the importance of this decision. The survey says: “In 2008, 27 percent of 55-61 year olds indicated they would collect Social Security as soon as they became eligible; this time around, only 21 percent felt the same. The average age most people plan to collect is 67, with 7 percent opting to wait until age 70.”

Many people don’t think they have much choice about when to start collecting. Those who have lost their jobs and can’t find employment may be desperate to take Social Security. Fidelity says 79 percent of pre-retirees surveyed plan to rely on their benefits to make ends meet and use the funds to pay for basic living expenses such as food, utility costs and mortgages. But if you can find an alternative, it might be wiser delay collecting until FRA, subsisting on other savings or part-time work, just to get that higher Social Security check at full retirement age.

Of course, if you have a health condition that indicates you might not live to a ripe old age, it certainly makes sense to start collecting early. Others say they don’t believe in the “future” of Social Security. But for most boomers, that argument is not the most rational one. After all, the government has the ability to create the money to pay on its promises. That would certainly be inflationary — but that’s the point of indexing Social Security to a cost-of-living index.

The time to start thinking about this issue is when you reach age 60 and start looking ahead to planning your retirement income. If you’ve been a saver, your Social Security check will be only one component of your income-planning decision. Even so, it’s far more important than most people realize. That’s The Savage Truth.

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