Baby Boomers and Social Security Benefits: Who Can Take Them and When We Should

Over seventy-five million Americans were born during the baby boom and many of us are fast approaching our 62nd birthdays. Sixty-two is a magic number because at sixty-two, we can elect to begin receiving social security payments. Benefits are available to anyone at age sixty-two who has worked for 40 credits, or about ten years.

When Should You Take Your Retirement Benefits?

There are reasons to put off our start-dates until at least full retirement age, if not later. The benefit increases about 7% each year the payments are delayed, which can dramatically increase the standard of living for many retirees.

Full retirement age (or FRA) varies depending on the year you were born. If you were born in 1943-1954, the FRA is 66; between 1955-1959 the FRA is 66 and two months for each year over 1954 (so 1957 would be 66 and 6 months); and for 1960+ the retirement age is 67. This is the age at which you can receive full social security benefits.

The decision between taking benefits earlier or later is inherently personal, and boomers should consider a number of factors before making a final determination. The first factor to consider is life expectancy. If your parents lived (or are still living) to a ripe old age, and you are in good health yourself, putting off benefits would enable you to get almost 30% to 70% more a month (depending on when, exactly, you begin taking benefits). If, however, you have a terminal illness or your family history is not as good, it is much more prudent to take the benefits early to get the most you can.

Another factor to consider is your current need. Do you have other sources of income from which you can sustain yourself until you reach full retirement age? If not, it is more likely you will want to start receiving payments as soon as possible.

A third factor to consider is whether you are still working. If you plan to continue working past retirement age, there is no ceiling on the amount of your wages that factor into what you receive from social security. However, if your combined income is above a certain threshold, you may have to pay taxes on your social security income. “Combined income” in this situation means your adjusted gross income, plus your non-taxable interest, plus half of your social security benefits. If you file individually and the resulting number is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your social security benefits. If your combined income is more than $34,000, you may have to pay taxes on up to 85% of your social security benefits. These numbers vary a little if you are filing jointly with a spouse or are married but file a separate return.

Boomers can choose to wait until after full retirement age to take benefits as well. You can get delayed retirement credits of 8% every year up to age 70. This amounts to a bet on a long life, but if you can afford to wait, many experts think you should.

Another, perhaps better, idea is to take advantage of the “withdrawal of application” option. Under this provision you can apply for social security at age 62 and receive payments and invest or save them until you reach full retirement age or even 70. At that time, as long as you pay back all the benefits you have received, you can begin taking benefits at the level you would have received if you had waited. You will not be charged interest on the amount repaid, and you get to keep any investment gains you accrued. In addition, if you have paid any federal taxes on your benefits in the meantime, you can recapture them with a credit or a deduction.

Who Else Can Receive Benefits?

A spouse who does not qualify for his or her own benefits, or whose spousal benefit would be more than what he or she would receive individually, can get spousal benefits of half the amount his or her spouse gets.

Not only can spouses receive benefits, but ex-spouses can as well. If you were married for at least ten years, have been divorced for more than two, and have not re-married, you are entitled to social security payments. These benefits do not affect the wage-earning ex-spouse’s social security rights, and he or she does not have to be retired or have applied for benefits for you to receive them. An important thing to consider here is that you lose these benefits if you decide to re-marry. However, some states have laws that allow heterosexual couples over 62 to register as domestic partners. This gives the couple all of the same benefits of being married (inheriting when there is no will, hospital visitation, and standing to sue under wrongful death laws, to name a few) without the detriment of losing divorcee benefits.

Certain other family members may also be entitled to receive benefits. Children under 18, disabled children up to any age, or a spouse who is not yet 62 but cares for an eligible child under sixteen may all receive certain benefits.

Your best bet will depend on your personal situation, so remember that what works for a friend or family member may not be the right choice for you.