By JLP | July 5, 2007
I took my kids to the library the other day. While I was waiting on them I took a minute to browse the business/personal finance section. I haven’t been in that section in a while because they never seem to have anything that is younger than 5 years old. I don’t know about you, but there doesn’t seem to be a lot of useful information in a personal finance book that is 5 years old. Anyhow, I came across a book that I remembered seeing in the bookstore recently and decided to check it out. It’s a book by Steven Silbiger and the title is Retire Early? Make the Smart Choices, which as you can tell, is about retirement planning. What I found interesting was the author’s discussion of Social Security and the things you should consider when deciding when to begin receiving benefits. It’s a tough decision and the answer isn’t always clear.
In the introduction of the book, the author lists the seven key issues that affect the decision to begin taking benefits early. They are:
1. What are the benefits available and what is the penalty for early retirement? What is the risk if you make the wrong decision?
Most likely you can find out this information through your Social Security statement that you should be receiving once a year (usually before your birthday). The statement will show you what your expected benefit should be based on your retirement age.
2. How’s your health? How long do you expect to live? How well is your spouse? What are the key health risks and how do they affect you?
If you are in poor health, you might want to take your benefits sooner rather than later. The Social Security Administration’s website has a life expectancy table that you can use to give you an estimate of how long you could be receiving benefits. The table assumes you are 65 years old. They also have a break-even age calculator that will show you how much longer you would have to live before you break even by delaying benefits.
3. Are you married? The early retirement penalty to the spouse could be 67 percent of the spouse’s benefits.
4. Are you planning to continue to work while receiving benefits? If you work too much, you could lose out on a lot (or all) of your benefits.
It’s crazy but if you begin receiving benefits before your Normal Retirement Age (NRA) but continue to work and you make over $12,960, you will lose $1 for every $2 of earnings in excess of $12,960. Ouch! And, according to the SSA.gov website, if you reach your NRA in 2007, you will lose $1 for every $3 of earnings in excess of $33,440 for the months prior to the month of your NRA attainment (thanks to commenter Dave for the clarification). The income amounts are indexed for inflation and therefore change yearly.
5. What are your cash needs for retirement? Will your benefits be extra spending money or a major lifeline?
If you don’t need the money, it makes sense to hold off receiving the benefits as long as possible.
6. What forecast do you have for your own investments? Is having extra money now more important to you than more money later?
It seems to me that this question is the same as number 5.
7. How concerned are you about the projected insolvency of the Social Security system?
There’s no sense in waiting if you don’t think the program is going to survive. However, if you are retirement age, put yourself in the shoes of us younger generations who are going to pay in a heck of a lot more in to the system than you did with even less of a chance of receiving benefits. Of course, I’m not complaining because I never had to go to war.
So those are the key issues the author talks about. He then goes on to address each issue in broader detail. The first chapter of the book is worth the price of the book becuase of the way the author walks step-by-step through an example of how he helped his friend figure out which path was best for her. This is a great topic that I hope to research and post on further.