When should you start taking Social Security retirement benefits? (Patrick Semansky/AP)
Columnist

One of the most important financial decisions that many of us have to make is when to begin taking Social Security retirement benefits. This matters not only to the people directly involved but also to family members, potential inheritors and anyone else with a stake in the potential claimants’ well-being.

I’m going to oversimplify — the only way to deal with Social Security without bogging down — until we get to a strategy called file-and-suspend, which might not be available much longer.

Okay, here we go. If you have at least 10 years of employment (or have been married long enough to someone with the requisite 10 years), you can begin drawing Social Security retirement benefits at any time between ages 62 and 70. The longer you wait to start, the bigger your monthly benefit — but the fewer years you have to collect it.

Under current rules, if you begin collecting at full retirement age (66 for those retiring today), you get 100 percent of your benefit. The benefit rises about 8 percent a year if you wait, and shrinks by about that if you start early. So at 62, you get 75 percent of your monthly benefit. At 70, you get 132 percent.

It doesn’t matter to Social Security when you take your benefits — it says that people collecting lower benefits for more years costs it the same as people collecting higher benefits for fewer years. But it can matter a lot to you.

If you’re out of work, have no prospects and need the money, you should consider taking benefits early. If you’re employed, make more than about $15,000 a year and begin benefits before 66, part of your benefit is deferred. That’s a serious drawback.

At full retirement age, there are no penalties. That’s when the decision becomes purely economic.

Conventional wisdom is to wait until 70 if you can afford it and are in good health, because higher benefits offset the risk of outliving your money — that’s longevity risk. However, unless you live to your mid-80s, you don’t come out ahead by waiting: It takes 12 1/2 years of a 132 percent benefit to make up for the four years of 100 percent benefit you gave up. Should you die at 69 and 11 months, you and your spouse are out of luck. That’s what’s called mortality risk.

My wife and I chose a middle path. We filed for benefits
when I turned 67, in large part because of our families’ unfortunate medical histories. We invested our monthly benefits in dividend-paying stocks, which helps offset collecting 108 percent rather than 132 percent. We chose not
to file-and-suspend, because it felt uncomfortable to game a program that is so important to so many people, and that I have written about for years.

But your feelings could be different. And file-and-suspend is easy to do — at least for now — by following instructions in the popular new book “Get What’s Yours: The Secrets to Maxing Out Your Social Security.” My longtime friend Philip Moeller, a journalist who specializes in retirement issues, is one of
the co-authors. The others are Paul Solman of “PBS NewsHour” and Laurence J. Kotlikoff of Boston University. It’s a very useful book.

File-and-suspend works like this. When one member of a benefits-eligible couple hits 66, for example, he or she files for Social Security but immediately suspends receiving payments; the other member files for “spousal benefits,” which are equal to half what the filer-and-suspender would have gotten. After reaching 70, the filer-and-suspender refiles. So the couple gets four years of partial age-66 benefits plus full age-70 benefits rather than not getting a dime until age 70.

Even if one or both spouses don’t make it to 70, the extra income offsets part of their mortality risk.

In its new budget proposal, the Obama administration has asked that this practice be barred, a proposal that I support. Moeller says that if file-and-suspend is whacked, the change shouldn’t be implemented for 10 years, because some people may have built their retirement around this strategy. Something shorter — a year or two — feels better to me.

So, here you are. I can’t advise you when and how to file, because everyone’s case is different. But I’ve shown you how the system works. Which is a pretty good start.