When to tap Social Security benefits Your payments vary depending on when you claim Social Security As you begin to consider the timing of your retirement from full-time work, the consideration of when to begin receiving Social Security benefi ts becomes a crucial factor. You have three options if you have earned enough work credits to qualify for Social Security. 1. You can tap Social Security as early as age 62 if you're willing to accept a permanently reduced payment. 2. You can wait until your designated full retirement age (see table A) to receive benefits. 3. If you don't need the Social Security income to meet desired spending, you can postpone receipt. For each year you postpone receipt (up to age 70), your checks will increase by a percentage tied to your birth year (see table B). Table A Year of birth   Full retirement age 1940   65 and 6 months 1941   65 and 8 months 1942   65 and 10 months 1943-1954   66 1955   66 and 2 months 1956   66 and 4 months 1957   66 and 6 months 1958   66 and 8 months 1959   66 and 10 months 1960   and later 67   Table B Year of birth   Yearly range of benefits increase,if you delay receipt 1937-1938   6.5% 1939-1940   7% 1941-1942   7.5% 1943 or later   8% Historically, retirees have opted to claim their benefits on the early side. If you absolutely need the income, or don't expect to live very long after you beginning receiving benefi ts, those may be valid reasons to start as early as 62. The benefit-reduction penalty, which can exceed 20%, goes down the closer you get to your full retirement age. If you can sustain your lifestyle without the Social Security income, you may be better off to wait for larger payments in the future. If you live beyond a breakeven point that depends on the size of your benefit, waiting will pay off. Life expectancy research indicates that average people, of average health, will reach the breakeven point. Waiting to claim larger payments essentially allows you to buy more "insurance" against longevity. Of course, many people simply can't afford to postpone receiving Social Security benefits. Others prefer to take them as early as possible and invest them with the hope of making up the difference of the reduced benefit. Life expectancy and lifestyle demands are critical to when to start In most cases, if you delay receipt of Social Security dollars to earn larger monthly payments in the future, you only need to live beyond your early 80s to make up for the difference of starting early, even if you are able to invest your early benefits for growth rather than spending them each month. Consider this example from the Social Security Administration Web site. Let's say you were born in 1942, so you will reach age 65 in 2008. Your full retirement age is 65 years and 10 months. We check your earnings over your working years and estimate that you would be eligible for the following monthly payments at: Age 62 (reduced by 46 months)   $758 Your full retirement age (65 years, 10 months)   $1,000 Age 70   $1,312 Age 62 vs. full retirement age In a choice between starting your benefits at age 62 or at full retirement age, your break-even point would be age 77 years and 10 months. That is, the total benefits you'd get during the 190 months from age 62 through age 77 and 10 months ($144,020) and the total you would get for the 144 months from full retirement age through age 77 and 10 months ($144,000) are almost equal. If you live beyond that age, your total lifetime benefits would be greater if you waited to full retirement age to start them. Age 62 vs. age 70 What if you waited until age 70 and began receiving payments of $1,312? Here, your break-even point compared to starting your benefits at age 62 would be age 80 years and 11 months. If you live beyond that age, your total lifetime benefits would be more if you didn't start them until age 70. Full retirement age vs. age 70 If you compare benefits at full retirement age and at age 70, the break-even point would be age 83 years and 4 months. The decade-plus difference between your full retirement age and breakeven point might seem like a long time but the probability that you'll live to an advanced age may be better than you think. According to the Social Security Period Life Table, as of its March 25, 2008 update, the projected life expectancy of a 65-year-old male in 2008 is another 16.8 years. Females have longer projected life expectancy. A 65-year-old female in 2008 is expected to live another 19.2 years. These are average life expectancies. If you are in good health and have longevity in your genes, the chance that you'll live beyond average expectancy is quite good. If you claim Social Security while still working Once you reach your full retirement age, you can continue to earn as much as you are able without having your Social Security benefits reduced. If you want to claim benefits before full retirement age and continue to work, your benefits can be reduced if your earnings are beyond certain levels. In 2008, if you earn more than $13,560 and are taking Social Security before the year in which you reach full retirement age, $1 in benefits will be deducted for each $2 you earn above $13,560. In the year that you reach your full retirement age, $1 in benefits will be deducted for each $3 you earn above $36,120 (2008) but only counting earnings before the month you reach your full retirement age. Tax considerations Despite not having your benefits reduced directly if you continue to work and claim benefits beyond your full retirement age, your Social Security payments may be subject to taxation if your modified adjusted gross income (AGI) plus half of your Social Security benefit exceeds limits. If modified AGI+1/2 of Social Security income exceeds: Single   $25,000   $34,000 Married filing jointly   $32,000   $44,000     Up to 50% of S.S. benefits may be subject to federal income tax   Up to 85% of S.S. benefits may be subject to federal income tax 2007 numbers. See IRS Publication 915 for examples and details. Consult a professional A thorough understanding of your expenses and other sources of income in retirement can help with your decision about Social Security benefits. A financial professional may provide valuable assistance in creating a retirement funding strategy that meets your needs. Please submit a request. Fund objectives, risks, charges, and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (866) 676-7680 or by visiting this page on russell.com. Please read the prospectus carefully before investing. Information for this article was obtained from the 2006 Guide to Social Security, the Social Security Web site (www.ssa.gov) and the Internal Revenue Service. Copyright © Russell Investments 2006. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns. Securities products and services offered through Russell Financial Services, Inc., member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. First used: May 2008 RFD 08-0294			RELATED Articles Affording Retirement Understanding Compounding Retire by Design, Not Default   Choose a single LifePoints Fund to fit your risk tolerance and investing goals. Printer friendly version of this page Send feedback or comments Site Search

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