Your Age to Benefit

By Martha M. Hamilton
Sunday, October 29, 2006

I'll tell you at the outset that when I started looking into the best age to draw Social Security, I assumed that later was better, because it meant a bigger monthly payment.

As it turned out, I was reflecting assumptions embedded in what I know about my own health and family history. My mother, Evelyn McNeil, turned 93 yesterday, so I could probably wait to draw a larger benefit at age 70 with a chance of coming out ahead.

But what's true for me isn't true for everyone.

Take Brian V. Jarvis, whose family history doesn't include that kind of longevity. Jarvis is planning to take Social Security early. And, according to Debra Sabatini Dwyer, an economist with the State University of New York at Stony Brook, both of us might be on the right track.

In research for the Michigan Retirement Research Center, Dwyer found that, based on the specifics of their own lives, on average people make good choices about when to retire and when to start drawing Social Security benefits -- despite the unknowable future.

Jarvis and his wife, both 51, live in Dayton, Ohio, and work for a defense contractor. Both have worked since their late teens and hope to leave the workforce young enough to enjoy retirement.

"When I plan to retire, it will be to retire," he said.

Jarvis, whose hobbies include genealogy, found that in his family the average age of death for men was 63, with a range from 41 to 86. While Jarvis expects to live longer than the average for his family, he says he expects to work until age 62 at the latest, which is the earliest he could draw Social Security.

Under Social Security law, Jarvis, born in 1955, will receive only 74 percent of the monthly benefit to which he would be entitled at age 66 and two months if he takes the payments starting at age 62.

But he and his wife have retirement income other than Social Security to count on, as well as retiree health insurance. Both of them will receive monthly pension payments from their employer, and both are maxing out on contributions to their 401(k) plans and individual retirement accounts.

Rather than depend on Social Security payments to support basic needs, Jarvis plans to invest that money, hoping to earn enough each year to offset the annual cost-of-living adjustment to Social Security and the penalty for taking the benefit early.

"I think it's a very interesting idea," TIAA-CREF chief investment strategist Brett Hammond said of Jarvis's plan. But he raised two caveats. One is that Jarvis might lose money on his Social Security investments. "If you're leaving it in Social Security and taking it out later, there's no risk." The other question Jarvis should consider is whether the decision might have adverse tax consequences, for instance by producing more income while he is in a higher tax bracket.

Taking early Social Security benefits has been allowed since 1956 (at first only for women, then later for men). Then, in 1972, amendments to the Social Security Act added another twist -- sweetening payments for those who delay taking payments past the age of full entitlement.

In the 1980s, there was still another change. When concerns arose about a shortfall in funding, Congress decided to gradually raise the age of full entitlement. For workers born in 1937 or earlier, it remained 65. But for younger workers, the age of full entitlement crept up -- to 65 and 2 months for those born in 1938, and by increments to 67 for those born in 1960 or later.

The way the system is designed, whenever you choose to draw benefits, the amount will be the same -- but only if you live to the average life expectancy for your age and gender. In other words, lower benefits times more years, normal benefits times normal years, and larger benefits times fewer years, add up to the same overall benefit.

Unless you die early. Or live longer.

That's where individual expectations and histories begin to inform decisions -- that is, if you are lucky enough to have other sources of income that allow you to decide when to draw Social Security. Many recipients aren't that lucky. Because of poor health that leaves them unable to work or other circumstances, they may not have another source of income when they turn 62.

With other sources of income and with his family history in mind, Jarvis leans toward taking Social Security at age 62. And when he plugged the numbers into the Social Security Administration's "break-even" calculator, the math supported his decision, he said. By taking benefits early, he would be ahead of the game for 14 years, until he turned 76. After that, he would have done better to have waited till he could draw 100 percent of benefits.

To do your own calculation, take your most recent Social Security statement, which will show the benefits to which you're entitled at ages 62, full entitlement and 70, and plug them into http://www.socialsecurity.gov/OACT/quickcalc/when2retire.html .

For myself, I'm still leaning toward waiting as late in the game as possible to draw Social Security. When the cost-of-living adjustment to Social Security rolls around (3.3 percent in January), I'd rather it be on the estimated $2,816 a month to which I'll be entitled at age 70 rather than the $1,538 a month to which I'd be entitled eight years earlier.

Did I remember to say happy birthday, Mother?

Do you know of any really excellent age-related discounts? Early admission to the 9:30 Club for people over 50? Please let me know of the best deals you or your parents or grandparents have discovered by e-mailinghamiltonm@washpost.com.

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