When to collect Social Security

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NEW YORK (Money) -- Question: I'm 60 years old and in good health. I can afford to put off drawing Social Security until after age 62 to get a higher monthly check, but I'm not sure if I should. What factors should I consider when deciding whether I should hold off collecting Social Security?  Robert Walker, Austin, Texas

Answer: Figuring out whether to take Social Security at 62 -- the earliest age you can collect -- or waiting until you're older has always been one of the most important questions retirees and wanna-be retirees face.

But making this call is even more critical today. The reason: working and saving a few extra years combined with the larger check you would receive by postponing Social Security can help you rebuild retirement accounts that have been devastated by the bear market.

Of course, some people may have no choice but to collect as soon as they can. If you're forced into early retirement by a layoff or health problems before you have a chance to build an adequate nest egg, taking Social Security benefits ASAP may be the only option you have.

But if you're approaching age 62 in good health and you're in reasonable financial shape as well, waiting a few years can significantly boost the size of your monthly check for the rest of your life, not to mention pass on a larger payment to your spouse, if he or she receives a survivor benefit based on your work record.

So the take-it-now-or-later question essentially comes down to this: Will you (and your spouse, if you're married) be financially better off collecting payments for more years even if they're smaller? Or will you come out ahead with payments that may be larger by 25% or more even if you don't start getting them until you're a bit older?

The answer largely depends on how long you expect to live. If you think you'll be around long enough so that the total amount you collect from the bigger but later payments will be larger, then you're better off postponing.

If, on the other hand, you don't think you'll live long enough to overcome the late start in collecting benefits, then you're better off claiming Social Security sooner.

You can get a rough sense what size benefit you would qualify for at three different ages -- 62, your full retirement age and age 70 -- by going to the Quick Benefit Calculator on the Social Security site. For a more accurate estimate that calculates the size of your check using your actual work history, you can check out Social Security's new Retirement Estimator.

By comparing the size of the total amount you would receive year by year by claiming benefits at different ages, you can see how long it would take for you to break even under different scenarios.

Or you can get a very quick and easy estimate of whether you're better off starting at age 62 or your full retirement age by going to Met Life's Social Security Decision Tool.

Just plug in your age, gender and your most recent annual salary, and a neat little graph will pop up that shows your break-even age (76 in the 62 vs. full retirement age scenario), your odds of reaching that age and how much more you'll receive in total benefits if you live until 85 or 92.

This tool doesn't factor in any investment value for your Social Security benefits, however. Why, you may ask, does that matter if you just plan on spending the money anyway? Well, think of it this way. If you receive, say, $1,000 a month in Social Security benefits, that's $1,000 you don't have to withdraw from your retirement investments. Which means that $1,000 can continue to earn a return. If you assume a conservative rate of return on your retirement savings -- say, 4% to 5% after taxes each year -- your break-even period increases by roughly three years. For most people, especially someone in decent health -- that still usually makes postponing a good deal.

The analysis gets more complicated for married couples. The idea is to maximize the amount a couple will collect as long as at least one of them is living. Recent research shows that the best strategy for many couples is for the wife to take Social Security at 62 and the husband to wait until he's 66 or older.

The reasoning is that husbands usually earn more than their wives -- which gives them a larger check -- but they die sooner. By having the wife start at an earlier age, the couple can collect more of her benefits while they're both living. And by the husband holding off to a later age for a larger check, the wife can then qualify for a larger survivor's benefit after her husband dies.

The best age for a husband and wife to begin collecting their respective benefits depends on the difference in their ages and earnings. To see what the ideal ages would be in your situation, check out Table 4 in a Boston College Center For Retirement Research paper titled "Why Do Women Claim Social Security Benefits So Early?". Or you can crunch the numbers on your own by downloading the "Start Social Security at 62, 66 or 70" program at the Analyze Now! site.

One final note: Recent research by T. Rowe Price shows that working, saving more and collecting Social Security later can be an especially powerful combination for increasing your income in retirement. For example, if you retire at 65 instead of 62 and save 15% of salary during those three years, you may be able to increase your combined income from investments and Social Security by more than 20%.

Bottom line: If your retirement accounts have taken a big hit in this crisis, you've probably already begun taking a closer look at your investing strategy. That's fine. But since you have little control over the financial markets, you may be able to improve your retirement prospects a lot more by re-thinking when you plan to retire and at what age you'll begin collecting Social Security.