Generally, people say they will wait until full retirement but most start benefits early. In 2009, about 42% started social security at the earliest age possible, 62. Many feel that they have been paying into the system for so long and they just want to get some of their money back. The drawback to taking social security early is benefits are reduced. A benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
Taxes: If you are working and receive benefits before full retirement, $1 of benefits will be deducted for every $2 earned above $14,640. Taking money from IRAs and 401k's between 62 and full retirement can ensure you receive 100% of your benefits and potentially lower your future taxes. With lower account values after age 70 1/2 you will be required to take less in IRS required minimum distributions each year. The less income you receive the lower your potential tax bracket.
Waiting past full retirement offers greater benefits adding thousands of dollars to your benefits each year. For each full year you wait past your full retirement age until age 70, you receive bonus "delayed retirement credits"which increases your annual payments 8%. This strategy is referred to as file and suspend. This can be enacted at full retirement age even when you started receiving benefits early but later decide you don't want to. Credits will accumulate on the reduced benefit you were receiving.
Strategies for spousal benefits can also be enacted to maximize benefits. One person can file and suspend while the other draws on spousal benefits. This allows you to earn the 8% retirement credits while still bringing in some income to pay bills and decrease withdrawals from IRA accounts.
The take away is social security benefits can be tailored to your circumstances to maximize benefits and potential taxes.
