Individual investors

When to tap Social Security benefits Payments vary depending on when you claim Social Security As you consider the timing of your retirement from full-time work, the consideration of when to begin receiving Social Security benefits becomes a crucial factor. You have three options if you have earned enough work credits to qualify for Social Security.   You can tap Social Security as early as age 62 if you're willing to accept a permanently reduced payment. You can wait until your designated full retirement age (see table A) to receive benefits. 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 benefits, 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 waiting for larger payments. The objective is to maximize your lifetime benefits. On one hand, all else being equal, you could have a smaller monthly benefit, but more of them if you choose to draw your benefits before your full retirement age. If you choose to delay benefits, you'll end up with a larger monthly payment, but fewer of them. One way to evaluate the various options is to determine the breakeven point and compare that to your life expectancy. The breakeven point is the age at which the lifetime benefits between two different start dates is equal. If you live beyond a breakeven point, waiting will pay off. Waiting to claim larger payments essentially allows you to position yourselves for 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 monthly benefit. Consider life expectancy and lifestyle demands 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 at the lower monthly payment. This is true even if you're able to invest your early benefits for growth rather than spending them each month. growth rather than spending them each month. Consider this simple example, using data from the Social Security Administration Web site (www.ssa.gov): Let's assume your full retirement age is 66 years, and your monthly benefit starting at 66 is $1,000. Age 62   $750 Your full retirement age (age 66)   $1,000 Age 70   $1,320 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. That is, the total benefits you'd get during the 15 years from age 62 through age 77 ($144,000) and the total you would get for the 11 years from full retirement age through age 77 ($144,000) are 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 $1,320? Here, your break-even point compared to starting your benefits at age 62 would be approximately age 80. 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 around age 82 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 Expectancy Table, as of its May 12, 2009 update, the projected life expectancy of a 65-year-old male in 2009 is another 17 years. Females have longer projected life expectancy. A 65-year-old female in 2009 is expected to live another 19.4 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. Claiming Social Security while 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 2009, if you earn more than $14,160 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 $14,160. In the year that you reach your full retirement age, $1 in benefits will be deducted for each $3 you earn above $37,680 (2009), 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 2008 numbers. See IRS Publication 915 for examples and details. Consult a professional We've provided some key considerations and a simple example here; they are by no means exhaustive. A thorough understanding of your expenses and other sources of income in retirement can help with your decision about Social Security benefits. A financial advisor may provide valuable assistance in creating a retirement funding strategy that meets your needs. Request a referral to a financial advisor who can help. Fund objectives, risks, charges and expenses should be carefully considered before investing. For a prospectus containing this and other important information call Russell at 1-866-676-7680 or go to the prospectus and reports page to download one. Please read the prospectus carefully before investing. Information for this article was obtained from the Social Security Web site (www.ssa.gov) and the Internal Revenue Service. As of December 2009. Copyright © Russell Investments 2012. 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. The information contained herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed. Russell Investment Group reserves the right at anytime, and without notice, to change, amend, or cease publishing the information. It has been prepared solely for informative purposes. It is made available on an "as is" basis. Russell Investment Group does not make any warranty or representation regarding the information. 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. RFS 2693. First used: December 2009.			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