Early Social Security draws usually unwise

Thursday, April 26th, 2012 By

Social Security

Social Security is there for retirement. Taking it early will cost you big. Image: DonkeyHotey/Flickr/CC BY

Texas Governor Rick Perry famously calling Social Security a “ponzi scheme” during his late presidential bid echoed a general mistrust shared by many Americans that the federal insurance money will not be there when their turn comes to collect it. While many financial experts would say that Perry’s statement was more about election politics than reality, some Americans are tempted every year to take their Social Security benefits out early. But most experts agree that it is usually a bad idea.

Age of full-retirement rising

The age for full retirement has gone up over the years. In 1999, that age was 65. In 2005, full-retirement benefits were not available until age 66 for people born after 1938. Now, for people born after 1959, that age is 67. Recipients can draw on that money as early as age 62 but at a much lower rate.

Ron Gebhardtsbauer, senior pension fellow with the American Academy of Actuaries, said in 2007:

“If you retire early, you permanently reduce your benefit.”

That statement still holds true. Taking an early draw on those benefits is really only sensible if you plan to die before your full benefits kick in. Gambling with your own longevity is iffy enough, but consider your spouse.

Spousal and survivor benefits

If married couples both work and one earns significantly more than the other, the lower-earning spouse could be entitled to a spousal benefit equal to half of the higher earning spouse’s benefits. But that benefit is only reaped if the account is accessed after full-retirement age.

And while nobody would wish it, if the higher-earning spouse should die first, his or her remaining partner is entitled to 100 percent of that “survivor” benefit. But again, only after retirement age is reached.

[Don't hurt retirement by drawing Social Security early. Use a short-tern loan.]

Good things come

Choosing to wait even later also comes with its rewards. If a retiree, who is able to draw Social Security without penalty at age 62, waits until age 70, that money can go up by another 76 percent, according to Daily Finance. The same holds true of a lower-earning surviving spouse, should he or she wait until age 70 to draw on those survivor benefits.

So deciding to draw Social Security benefits early not only costs the you in the long run, but may also greatly harm the finances of your spouse later should the unspeakable happen.

Delay benefits as late as possible

Most experts agree that the smartest move is to delay drawing Social Security benefits as late as possible. Of course health and need plays a factor, but it is not a decision to be made lightly. And perhaps politics are best left out of it.

Sources

CNN
Social Security Online
Daily Finance 

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