TIP OF THE MONTH - December 2007

SHOULD I TAKE SOCIAL SECURITY EARLY?

Most people believe it is best to wait until age 65 to start drawing social security benefits because benefits are reduced if you start drawing them earlier. It is true that the Social Security Administration reduces benefits by 5/9 of 1% for each month a person takes benefits prior to age 65, making for a maximum reduction of 20% in monthly benefits for someone who starts drawing social security at age 62. Statistically, you may be worse off, however, by waiting till age 65 to draw benefits based on present-value calculations. Even though your benefits would be higher, it would take you until age 77 until you've received the same total benefits that you would have accumulated had you started drawing benefits at age 62. Furthermore, assuming 3% inflation and an 8% return on investments, you would not break even until age 84 by delaying benefits until age 65. Simply put, it's a gamble. If you delay taking social security and have longevity, you'll come out ahead, but if you don't, the government is the winner.