One of the biggest decisions facing retirees today is whether they should start drawing their Social Security benefits prior to reaching full “retirement age.” According to the Social Security Administration, “retirement age” is a sliding scale based upon the year in which you were born, ranging from age 65 to 67. While you are permitted to begin Social Security benefits after reaching age 62, you will receive a lesser amount than if you wait until your full retirement age. For example, if your retirement age is 65 and you start drawing benefits at 62, you would face a monthly reduction of 20% in your check. If on the other hand your retirement age is 67 and you began benefits at 62, your monthly check from Social Security would be reduced by 30%. As a side note, no matter when you begin receiving your Social Security retirement check, Medicare benefits are only available after turning 65 years of age.
The question remains as to whether or not a person should consider taking Social Security benefits “early.” The simple answer to the question is – it depends!! The potential retiree must first make some immediate financial decisions. Can you survive off of the reduced Social Security amount? By drawing benefits early, the “retiree” must realize that the amount that he can “earn” will be limited. If you are under full retirement age for the entire year, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2011, that limit is $14,160. So by drawing benefits early, you limit the amount that you can earn.
Metropolitan Life Insurance Company has developed a three question test to determine whether you should start collecting Social Security early. This tool, which can be found on the Met Life web site, is a quick way to determine your breakeven point. The Met Life calculator points out that the potential retiree should consider the long-term impact of reducing his or her monthly payments by 20-30%.
Again, the decision is not easy. While the Benefits Board has no crystal ball to tell you what is best for you, generally we would suggest that you not start drawing your Social Security benefits until you reach full retirement age if you are still working. Taking reduced benefits and potentially having those benefits reduced further because of the earnings limit is not worth the financial costs. However, if you truly retire prior to your Social Security retirement age, it may be better to take your reduced Social Security benefits than to go into debt at this stage of your life or make large withdrawals from your tax-deferred retirement accounts, such as your Ministers’ Retirement Plan account.
Just as with any decision concerning retirement, your decision to take Social Security benefits early should be bathed in prayer. To learn more about your Social Security benefits, please visit the Social Security Administration’s official web site at www.ssa.gov, as well as the Met Life calculator.