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Planning for retirement

Bob Priest

Dear Mr. Priest: I’m almost 65 years old and getting ready to retire. I don’t want to stop working entirely and will probably start working part-time, doing something I really enjoy. If I continue to work, can I still take Social Security benefits without getting penalized?

– Mitchell, Vail

Dear Mitchell: The answer to your question would be quite different if you were asking me several years ago. Before 2000, Social Security recipients between the ages of 65 and 69 had to worry about something called the earned income test. This meant your benefits could be reduced by $1 for every $3 of employment income earned in excess of $17,000. Thanks to recent changes, you no longer get penalized if you continue working after 65 and simultaneously draw Social Security income (a form of the income test still applies to those under 65).

However, now you have a different decision to make: Should you start taking reduced benefits now or should you wait and enjoy greater monthly benefits later? Under the current system, you are given a 6.5 percent bonus on your monthly Social Security benefits for each year that you wait beyond 65 years old (up to age 70). This could translate to a whopping 32.5 percent increase in monthly benefits by waiting until you are age 70 to collect.

So, how do you go about making the decision to start taking Social Security or to wait? Without knowing your exact situation, let me give you some guidelines regarding the decision-making process. There are several reasons to consider taking payments now rather than waiting. First of all, if you need the income now, your decision is made for you. Start your benefits at 65. Second, if you don’t expect to live long, you may be better off starting distributions earlier. That’s because you may not live long enough to make higher Social Security benefits worthwhile. On the other hand, under certain circumstances, there are some good reasons for waiting to take distributions.

First, if you expect to live a long life (i.e. you have a family history of longevity), you may be a good candidate for waiting. If you do live long, this could more than compensate you for longer yet smaller payments. Second, if your spouse is significantly younger than you, this favors the argument of prolonging your benefits. The longer your surviving spouse has at the higher benefit level, the more attractive waiting becomes.

Finally, if you don’t need the income, you at least open the door to the possibility of taking your Social Security benefits early and investing them for use at a later date. The biggest factor then becomes the rate of return on your invested Social Security benefits. The higher your investment return, the more attractive this option becomes. Personally, I feel psychological factors such as your investment philosophy have to be considered as well. How comfortable are you with having that money invested during your retirement/semi-retirement years? After all, if you end up losing sleep at night because of your decision, you’ve made the wrong choice. If you want to simplify the decision-making process, any good financial planner should be able to crunch the numbers for you, given your particular situation.

Bob Priest, MBA, CFP, is an independent certified financial planner and registered investment advisor serving clients locally and nationally. He can be reached at 1-877-Bob-Priest or visit his Web site at http://www.BobPriestFinancial.com. Submit your financial questions to Bob@FinancialCompanies.com.


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