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The Only Guide You'll Ever Need for the Right Financial Plan: Managing Your Wealth, Risk, and Investments by Tiya Lim, Kevin Grogan, Larry E. Swedroe

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Chapter 15. Social Security

According to the Social Security Administration (SSA), Social Security benefits represent about 40 percent of income for the elderly. Social Security benefits are guaranteed income that is inflation adjusted, investment risk-free, longevity protected, and comes with a spousal death benefit. Because the benefits are often a significant source of retirement income, it is important to know when to begin taking them to optimize lifetime benefits.

How Benefits are Determined

Benefits are determined based on a claimant's birth year, benefits start date, and lifetime earnings. Once reaching full retirement age (FRA), the worker is eligible for a full retired worker benefit, the primary insurance amount (PIA). Depending on the worker's year of birth, the current FRA ranges from sixty-five to sixty-seven. If a worker claims a benefit prior to reaching the FRA, the PIA can be reduced up to 30 percent. Due to delayed retirement credits, delaying a claim until seventy will result in a benefit of 32 percent over the PIA.

When to Take Benefits

Actuarially, if you live to average life expectancy, taking benefits at any age will provide the same cumulative amount of benefits. Under certain circumstances. you could earn more or less than what is expected. It is in these cases that deciding when to take benefits becomes important.

Factors to Consider

Current health, life expectancy, employment status, and taxes all affect the decision of when to take Social Security benefits. ...

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