Timing Your Social Security Benefits

(page 2 of 2)

At a 5% return, that money would yield a stash of $283,304, says Kristopher Johnson, a financial planner in Wheaton, Illinois. With a 7% return, you'd have nearly $350,000 to live on in your 80s and 90s or leave to your heirs. Johnson cautions, however, that if you're living on taxable IRA withdrawals or a pension, taking the benefit could significantly increase your annual tax bill.

Another possible approach comes from Bert Whitehead, a financial planner in Franklin, Mich., who offers this simplified example, which does not take into account the potential annual benefit COLA: Take the benefit at 62 and invest it up until you turn 70. Then start spending some of the money you've earned from that investment to live on. Investing the $758 a month benefit at age 62 and receiving a conservative, 5% annual return for eight years, you would save $89,616.

Whitehead suggests that under this scenario, at age 70, you could spend the monthly $758 benefit you receive, plus $554 from the total investment earnings of $89,616, to reach the $1,312 monthly benefit you'd have received by waiting until age 70. At this rate your break-even age will be 92. "And if you got a return on the money of 6%, your, break-point would be when you're almost 101 years old," Whitehead says.

Other Factors to Consider

These examples are just that: The numbers are simplified, and every individual's situation will be different. So once you've checked your own break-even points on the Social Security chart, be sure to consider other key factors that enter into the decision. These include: Whether you plan to keep working at least part-time; your health status and family longevity; and all of your financial resources and prospects for the future—and, if you're married, the same data on your spouse.

For many Americans, there's no debate about when to start taking Social Security, because it's the only thing that will keep them out of poverty. But if you have other assets that will generate retirement income, you owe it to yourself to research all the options—if necessary, with a financial adviser who can calculate your best scenarios on a computer program—before signing up for your benefit.

Hoffman is the author of The Retirement Catch-Up Guide and Bankroll Your Future Retirement with Help from Uncle Sam. Her Your Retirement column may be found at businessweek.com/investing/. You can contact her through her Web site, retirementcatchup.com.