Dear Carrie: I'll be 62 next month. All my friends seem to be taking Social Security on their birthday. I've heard this may not be the wisest choice. What do you think? --A Reader
Dear Reader: Turning 62 seems to be one of those magic milestones -- and more and more people seem to be celebrating by filing for Social Security benefits the first chance they get. According to the Stanford Center on Longevity, the majority of retirees choose to begin receiving Social Security payouts within a few months after age 62 or immediately after they stop working, regardless of economic or educational status.
The reasons for taking benefits early appears to be primarily emotional -- fear that Social Security will disappear or just because it's possible to do it -- rather than considering if it makes long-term financial sense. In fact, a new study by economists John B. Shoven and Sita Nataraj Slavov indicates that rather than putting extra money in your pocket, taking Social Security benefits early may likely leave a fair amount of money on the table.
But studies aside, deciding the best time to take your benefits is a personal decision, based on your individual situation. So before you join your friends at the benefits table, I'd check your own financial reality.
DO YOU NEED THE MONEY?
The ongoing recession has made this a serious question for a lot of people. For those who have lost their jobs and are having trouble finding other employment, taking Social Security benefits early may be essential to stay afloat.
On the other hand, if you're still working and you file at 62, not only will your benefits be permanently reduced by about 25 percent, $1 will be deducted for every $2 you make above the annual limit, which is currently $14,640. While you will get the money back in the form of a recalculated benefit when you turn 66, the temporary reduction minimizes the economic value of filing early. Plus, if you make over a certain amount each year (between $25,000 and $34,000 for single filers; between $32,000 and $44,000 for married filing jointly), you will likely have to pay income taxes on a percentage of your benefits.
DO THE MATH
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