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Time Is Money: Deciding When To Take Social Security

Raj Mundhe, CRPC

One of the few things you can control about Social Security is when to start collecting it. Should you take it when you become eligible at age 62, wait until “normal” retirement age (a function of your birth date) or consider delaying your benefits past normal retirement age?

To help you make this decision, consider that, on average, Americans are living longer than ever before. Clearly, the longer you expect to live, the more sense it makes to delay taking Social Security. But of course, each person’s circumstances and needs are different—here’s a look at how timing can affect the benefits you receive.

Early Benefits. The soonest you can collect Social Security is age 62. But taking payments at 62 will result in a permanently reduced benefit, ranging from a 20% reduction for people born in 1937 up to 30% for those born in 1960 or later. You may want to consider early benefits if you need income but prefer to leave your portfolio intact, or if you intend to invest the benefits to try to earn a more competitive return (though there’s no guarantee you will do so).

Full Benefits. Eligibility for full Social Security benefits varies according to the year you were born. Depending on how long you worked and how much you earned over your lifetime, the maximum benefit you could collect at normal retirement age (65 years and 10 months) is $2,185 per month in 2008. Consider waiting for full benefits if you plan to work until age 65, if you want to ensure a larger survivor’s benefit for your spouse or if family history and good health may lead to an above-average life expectancy. Refer to the Social Security Web site http://www.socialsecurity.gov/OACT/quickcalc/when2retire.html) to calculate your “breakeven” age, when the accumulated value of higher benefits from postponing retirement will start to exceed the value of lower benefits from choosing early retirement.

Delayed Benefits. If you continue working beyond your normal retirement age, you will be eligible to collect a permanently increased Social Security benefit when you do retire. Approximately 8% more per year will be added automatically to the permanent benefit amount for every year you wait. Delaying benefits past age 70 will generally add nothing more to your monthly benefit.

To help assess your situation, refer to your personalized Social Security Statement, which estimates the monthly Social Security benefits you may qualify for (go to http://www.socialsecurity.gov/mystatement for a copy of your statement). You may also wish to enlist the help of a financial professional to crunch some numbers and determine what sort of timing would best support the retirement you envision.

Citigroup Inc., its affiliates and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

Citi Personal Wealth Management is a business of Citigroup Inc., which offers securities through Citigroup Global Market Inc. (“CGMI”), member SIPC. Insurance is offered through Citigroup Life Agency LLC (“CLA”). In California, CLA does business as Citigroup Life Insurance Agency, LLC (license number 0G56746). CGMI, CLA and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc. and its affiliates and are used and registered throughout the world.

This piece is a publication of Morgan Stanley Smith Barney LLC. Morgan Stanley Smith Barney LLC is affiliated with, but distinct from, Citibank and Citigroup Global Markets Inc.

© 2009 Morgan Stanley Smith Barney LLC., Member SIPC.

(Raj Mundhe, CRPC ® is a Morgan Stanley Smith Barney Financial Advisor located in Waltham, MA and may be reached at 781-672-5111 or http://fa.smithbarney.com/rajmundhe )

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