Friday, September 7, 2012

It's Your Money, You need it Now

My AARP newsletter came in the mail today.  I am fairly certain that in every communication I receive from them there is something telling me to wait to collect my Social Security.  Here was today's message:

In case you can't read that, it says that taking your benefit at 62 instead of 66 will result in a 25 % reduction in your payment.  What it doesn't say is that for four years you are collecting 75% of your benefit.
Countless articles will tell you to wait until 66, or even till 70, before you begin collecting benefits.  That's great for anyone who doesn't need the money and also knows exactly when they are going to die.  I am pretty sure my father had no idea he would drop dead at 57 after not having any serious illness.

When I applied to the Social Security office for my benefits at 62, the agent there said to take the money.  What you need to do is calculate how many months you need to collect the full amount to make up for the amount you didn't collect at the reduced rate for four years.

In other words, if your full benefit at 66 is $2000 per month, let's say your reduced benefit at 62 is $1500.  Over four years you collect $72,000 (ignoring Medicare deductions for simplicity and COLA).  If you begin collecting at 66, you collect $96,000 in the next four years.  The person who started collecting at 62 has banked $144,000.  If they both get hit by a car the next day and die, who is further ahead?   (I know. The heirs.)

The person who takes the money earlier has to collect for about 19 years before they start to fall behind.  And yes, they will stay behind.  But only if they are still alive.  And that is the big crap shoot isn't it?

There is another option to return what you have collected and begin collecting at the higher level.  I think I'll pass on that one.  I was never much of a gambler.

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