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When to File for Social Security Benefits

NEW BERLIN, Ill. (MainStreet) -- All retired future Social Security recipients face this question at some point: When should I file for benefits?

As you are likely aware, 62 is the earliest age you can file. At this age, you will get your benefit at a reduced amount -- perhaps as much as 30% reduced.

Social Security balances out retiree benefits whether filing early or late, but there are still factors to think about.

Waiting to file until your full retirement age will allow you to get the full benefit amount -- no reductions. You could also wait until age 70 to file, which would result in an overall increase to your monthly benefit amount by as much as 32%. Granted, you will have forgone several years' worth of payments, but on average, it all works out about the same. These reductions and increases are designed to produce roughly the same amount of benefits during recipients' lifetimes. It's all calculated by actuaries, and it involves the population's average lifespan.

In other words, if you start getting your benefit earlier, even though it's reduced you get it for longer than if you waited. On the other hand, if you delay filing until your FRA or age 70, your benefit is greater each month, but you'll get it for a shorter time. But eventually these strategies "cross over" -- that is, one method begins to work more in your favor than another -- at around age 82.

What I mean by that is that, filing earlier at the reduced rate will pay you more in overall benefits up to age 82, at which point the later filing ages will begin paying you more over your lifetime. If you take into account annual cost of living adjustments, the break-even point is actually quite a bit lower, possibly as early as age 76. This is because the COLA is a percentage applied to your monthly benefit -- and if your monthly benefit is reduced by filing early, your COLA adjustments will be smaller as well, and vice versa when you file later.

So if you plan to live past age 76, it most likely is in your best interest to wait until the latest point to file for your benefit. If you need more reasons to wait, read on.

Survivor benefits
One additional reason you might want to delay applying for your benefit is if you have family members that will depend upon your benefit when you die. Survivor benefits are based upon the actual benefit that you were getting at your death, so if you delay filing and therefore get a higher benefit amount, your surviving spouse (and other family members, if eligible) will get a higher benefit amount for the remainder of his or her life, assuming the survivor benefit is greater.

If your benefit is the same or smaller than your spouse's benefit, or if you don't have a spouse, it's up to you: If you think you'll outlive the average, it's better to wait. If you don't think you'll live that long, start as early as you like. For more information, check out the book A Social Security Owner's Manual (CreateSpace, 2011).

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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