Wednesday, January 16, 2013

Social Security Benefits - When to Begin Collecting Them

As with most financial planning topics, this question, although seemingly straightforward, is actually rather complicated. As a result, when it comes to retirement planning, there are few issues that raise as much interest right now as Social Security.

Although it’s been around since 1935, most people today still admit knowing very little about Social Security and how it works. Yet, it is an important aspect of any retirement plan. Consider the following statistics:
  • Nine out of ten individuals age 65 and older receive Social Security benefits.1
  • Social Security benefits represent about 39% of the income of the elderly. 1
  • Social Security provides more than half of the income for nearly two-thirds (65%) of elderly beneficiaries.2
  • For almost four out of ten elderly recipients (36%), Social Security provides more than 90% of their income.
According to the Social Security Administration, the average monthly benefit being paid to current retirees is $1,234 per month. For a 66-year-old man with an average life expectancy of 82, this represents total payments of well over $200,000 in today’s dollars.
With so much at stake, the decision to begin Social Security benefits becomes a critical one. Let’s review the basics, setting aside for the moment the rules of eligibility.

Social Security is based upon two central definitions: Primary Insurance Amount (PIA) and Full Retirement Age3 (FRA). Your Primary Insurance Amount (PIA) is calculated based on your earnings and your Full Retirement Age (FRA) is determined by your year of birth. (See the following table.)

Year of Birth
Full Retirement Age (FRA)
1937 or earlier
1938 – 1942
65 + 2 months for every year after 1937 until 1943
1943 – 1954
1955 – 1959
66 + 2 months for every year after 1954 until 1960
1960 and later

At your Full Retirement Age (FRA), you are entitled to 100% of your Primary Insurance Amount. The earliest you can collect Social Security benefits is age 62. However, for every month prior to your FRA, your PIA is reduced. You can also delay benefits past your FRA. Again, for every month past your FRA, you will receive Delayed Retirement Credits, which equal 8% per year, up to age 70.

So what does that all mean? Overall, it’s important to understand this: whether you begin benefits at age 62 (the earliest age) or age 70 (when Delayed Retirement Credits stop), Social Security is designed to pay out the same total benefits over the average person’s life expectancy. Let’s look at an example, very basic and completely hypothetical, involving an individual with a FRA of 66 and a PIA of $1,600/month.

Age benefits begin …
Percentage of PIA …
Monthly benefit …
Annual benefit …
Total benefits received by age 70 …
Total benefits received by age 80 …
Total benefits received by age 90 …

You notice that by age 80, the total benefits paid are roughly the same. Given the trend of prolonging life expectancy, there is compelling logic to consider delaying Social Security as long as possible.

However, the reality is there is no single right answer to the question. Instead, there are a number of considerations that should be taken into account when it comes to the decision to begin Social Security benefits.
  • What is my current health and likely future health status?
  • What is my life expectancy? Is there longevity in my family history?
  • What is my current and future financial situation? Do I need the income?
  • Do I intend to keep working? If so, for how long and how much do I earn?
  • Do I have a spouse? What strategies are available to maximize our combined benefit? What strategies are available to best protect the surviving spouse?
  • What is my political view on Social Security and its future?
In conclusion, it is our strong opinion that this decision should not be made casually, but only in consultation with a trusted financial advisor who is educated and experienced not just in the nuances of Social Security, but is aware of your overall retirement plan.

For more information on Social Security, contact us today. 

"Social Security Fact Sheet" Social Security Administration, December 2011;

"Policy Basics: Top Ten Facts about Social Security” Center on Budget and Policy Priorities, November 6, 2012;

"Retirement Planner: Full Retirement Age” Social Security Administration;

All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.
Securities and investment advisory services offered through National Planning Corporation (NPC), NPC of America in FL & NY, Member FINRA/SIPC, and a Registered Investment Adviser.  Registered Representatives of NPC may transact securities business in a particular state only if first registered, excluded or exempted from Broker-Dealer, agent or Investment Adviser Representative requirements.  In addition, follow-up conversations or meetings with individuals in a particular state that involve either the effecting or attempting to effect transaction in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with state Broker-Dealer, agent or Investment Adviser Representative registration requirements, or an applicable exemption or exclusion.  Kemp and Associates and NPC are separate and unrelated companies.  NPC PRIVACY POLICY.     NPC # 69498   01/15

The information being provided is strictly as a courtesy.  When you link to any of the web sites provided herewith, you are leaving this site.  We make no representations as to the completeness or accuracy of the information provided at these sites.  Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third party technology, sites, information and programs made available through this site.  By clicking on the links above you will leave our web site and assume total responsibility and risk for your use of the sites to which you are linking.

Opinions voiced on this blog are not intended to provide specific advice and should not be construed as recommendations for any individual.  To determine which investments may be appropriate for you, consult with your financial, tax or legal professional.  Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.  There are no guarantees that any investment strategy will meet its intended objective.