When should you begin taking Social Security payments?

Choosing when to retire and start drawing Social Security benefits is an important decision, and one that is unique to each individual, according to the Maryland Association of CPAs.

You can begin taking payments as early as age 62, based on Social Security regulations, but when you retire will have an effect on the amount of the payment you receive.

How payments are calculated

Your Social Security benefit payments are based on your work history. In short, the more money you have earned over your career, the higher your benefits will be.

As we noted, though, the age when you retire will also have an impact. Although you are allowed to begin collecting payments at age 62, you will not yet have earned full benefits. That means your payments will always be about 25 percent less than they would have been if you had waited until full retirement age.

However, early retirees will face benefit forfeitures for working while receiving benefits. If you continue to work to age 70 and beyond, you will receive more than the full benefit amount when you finally do decide to retire.

Remember, too, that anyone born in 1938 or later will no longer receive full benefits if they retire at 65, which for many years was considered the official retirement age. Depending on the year when you were born, you may have to wait as late as age 67 to retire with full benefits.

An informed choice
So, when’s the best time to retire? If you are a healthy person who enjoys working, it’s probably best to continue doing so as long as possible without drawing on Social Security.

Sometimes, the decision to continue working might be less about choice and more about the necessity to work. If you are in poor health, it may be best to take your payments as soon as possible. (You can apply for Social Security disability benefits at any age if you are no longer able to work.) However, if you have a large retirement nest egg and don’t need the maximum Social Security benefit, you can always choose an early retirement.

Whatever choice you make, don’t forget to sign up for Medicare health care coverage when you become eligible for it at age 65.

Your report card

Every year, you receive a Social Security Statement that details your own earnings history and offers estimates of what your payments will be if you retire at different ages. It also discusses the disability benefits you can expect if you are severely disabled and describes the survivor’s benefits that eligible family members will receive if you die. This statement is a great tool to use as part of your overall retirement plan. You’ll find more information at the Social Security Web site at www.ssa.gov.

One part of the plan

Your Social Security payments will likely replace about 40 percent of your pre-retirement income, according to the Social Security administration. The government also estimates that you will be able to live during retirement on about 70 percent to 80 percent of your previous income, although some advisers believe you may realistically need 100 percent of your pre-retirement income. This depends on your retirement lifestyle.

That means that your Social Security checks will not be enough to provide you with a comfortable retirement. In addition to any pension payments you may receive from your former employer, you should also plan to have sufficient personal savings and investments to cover your costs.

If you have questions about the best time to begin drawing Social Security payments —- or about other retirement planning issues —- be sure to consult your local CPA. He or she can help you find the answers to your family’s financial questions.

Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.