Full benefits are now delayed - Social Security

USA Today (Society for the Advancement of Education), April, 2003

Are you planning to retire at age 65 in 2003 and start collecting full Social Security benefits? Forget it. Ditto if you turn 65 in 2004, or later. Workers turning 65 no later than the end of 2002 will be the last workers eligible to collect full Social Security retirement benefits starting at age 65. Those born in 1938 or later will have to wait beyond their 65th birthday to start collecting full benefits--as much as two years later.

Not a lot of Americans know that. A 2002 study by the Employee Benefit Research Institute, the American Savings Education Council, and Mathew Greenwald & Assoc. found that only 20% of adults know precisely at what age they will be eligible to collect full benefits.

In 1983, Congress mandated that the full-benefits age for Social Security gradually should increase, starting in 2003. So, if you are turning 65 in 2003, you cannot collect full benefits unless you wait at least two months after your birthday to start. If you turn 65 in 2004, you will have to wait four months beyond your birthday. People born between 1943 and 1954 must wait until age 66. For individuals born in 1955, benefits can be taken at 66 years and two months. For those born in 1956, it is 66 years and four months; for 1957, it is 66 years and six months; for 1958, it is 66 years and eight months; and for 1959, it is 66 years and 10 months. People born in 1960 or later can't start until they are 67. The increase doesn't go beyond age 67, though some experts concerned about the financial solvency of Social Security argue that we need to push back the maximum full-retirement age even further.

Although the full-benefit retirement age is gradually increasing, you can still start collecting reduced Social Security benefits as early as age 62. Keep in mind, though, that the reduced payments are permanent. They don't shift to full benefits when you reach normal retirement age. Furthermore, as the full-benefit age increases, the size of the early-start reduction also does.

For example, someone who starts collecting benefits at age 62 this year instead of 65 receives a permanent 20% reduction in monthly payments. For those who start between 62 and 65, the reduction is less the closer you get to age 65. The reduction is to compensate for the fact that you collect benefits longer, assuming you live to your normal life expectancy. Lifetime benefits will be roughly the same whether you start at 62 or 65 and live a normal life expectancy.

In 2003, however, benefits for those starting to collect at age 62 will be reduced nearly 21% instead of 20%. For people whose full-benefit age is 66, benefits would be reduced 25% if they start collecting at age 62, and 30% for those born in 1960 or later.

Delaying benefits beyond the full retirement age increases the amount of your monthly payments by a certain percentage up to age 70. For instance, someone born in 1946 who waits until age 70 to start collecting benefits will receive payments that are 32% higher than if he or she had started at full-retirement age. Say you collect $1,200 a month in benefits at your full retirement age of 66. Start at age 62 and your payments will be only $900 a month. Wait until age 70 and they'll be $1,584. (These figures will be adjusted annually for inflation.)

This changing of full-retirement age will further complicate the decision to start collecting benefits before, on, or after normal retirement. Usually, if you are still working, it is best to delay collecting benefits. If you retire early, though, should you start collecting right away or wait until you are eligible for full benefits? If you retire at your normal retirement age, should you wait until age 70?

The answer to the "What age should I start?" question requires some break-even calculations. You will need to consider such factors as:

* Whether you can afford to delay (you may need the benefits to pay bills)

* How long you expect to live in retirement (the longer, the more it may pay to delay)

* Whether you invest your benefits instead of spend them, and how much the investments earn

* Income-tax implications, especially when coupled with other retirement distributions.