When should you start taking Social Security?

The question boils down to this: Should you start collecting Social Security early – thereby receiving smaller, but more numerous, checks – or later – when your checks will be bigger but fewer?

If you really need the money once you reach 62, you’ve already got your answer. But if you could potentially afford to wait, we recommend you view your decision through a LENS:

• L: Projected lifespan – You can’t see into the future, but given your family history and general health, you can make an educated guess about your projected longevity. If you’re fairly confident that, once you reach 66, you’ve still got another two or more decades in front of you, you might want to consider delaying taking Social Security past age 62.
• E: Employment status – If you’re younger than the full retirement age – between 62 and 66 – then for every $2 you earn over $14,640 (in 2012), you’ll lose $1 in Social Security benefits. In the months before you reach your full retirement age, for every $3 you earn over $38,880 (again, for 2012), you’ll lose $1 in benefits. But starting in the month you reach your full retirement age, you can earn as much as you want without losing any benefits.
• N: Need, including your other sources of retirement income – If you have a pension, or you’ve built substantial resources in your individual retirement account, your 401(k) or other employer-sponsored retirement plan, and you can support your income needs with modest withdrawals from these accounts, you might decide it’s worthwhile to delay taking Social Security to maximize your benefits. Remember that regardless of your Social Security decision, you typically would have to pay a 10 percent early withdrawal penalty if you started taking withdrawals from these accounts before you reach age 59 1/2.
• S: Spouse status – If you’re single, you basically just need to think of yourself when making this decision. But it’s a different story if you’re married. If you die first, your spouse can keep receiving his or her own Social Security benefit or receive yours – whichever is larger. Consequently, you and your spouse will want to coordinate when you take Social Security benefits so that you can maximize the benefit for the spouse likeliest to live longer.

This column was provided by Edward Jones for use by Chet Osterhoudt, an investment representative for Edward Jones in Nashville.