When people plan and invest for retirement, the decision of when to begin taking Social Security benefits eventually comes up. Social Security is an important source of retirement income for many individuals and, therefore, the decision of when to take these benefits can make a big impact on retirement income.

A retired worker who is fully insured can elect to start receiving benefits at any time between age 62 and 65 (or even later). Benefits can start as early as 62, but if you so elect they are permanently reduced by 20%. Here is where the question arises. Is it better to start taking checks at a reduced amount or wait until Normal Retirement Age and receive full benefits? Before addressing the inherent problems with this empirical question, let’s look at some of the factors and considerations.

The early bird who decides to get the worm first gets three years’ worth of checks -36 payments- that the sleeping bird will never see. Thus, it will take some time for the total benefits of the person who waits until age 65 to catch up to those of the early collector. Further, for those born after 1937, Normal Retirement Age is being extended. Normal Retirement Age is currently age 65, yet due to the Social Security amendments, full benefit age will be raised gradually in two stages until eventually reaching 67 in 2027. Thus, the early bird will receive even more checks than the retiree who bides his time for full benefits.

If the early bird also did not need the benefit income and chose to invest instead of spending the checks, the investment income would partially offset the reduced yearly benefit as well as extend the catch-up period for the age 65 collector. Sounds like most people would opt to be an early bird.

There are other factors to consider (as always). Working an extra three years will probably increase the patient retiree’s benefits. This is so because more earnings will be credited toward the Social Security account. Chances are that old low-earning years will be replaced in the benefit equation with a current high credit year. These higher benefits will then shrink the catch-up period.

Delaying retirement benefits beyond 65 until age 70 will also increase the size of the benefit due to a credit provided by the Social Security Administration for such patience. Further, for those born after 1937 who choose to begin receiving benefits at age 62, the reduction-in-benefits penalty is further stiffened from 20% to an eventual 30% in 2022. The hare will feel the tortoise closing even quicker.

Taxation of benefits may also enter the picture. Poor timing of Social Security and other income may result in a good portion of early benefits being subject to inclusion in income and painfully taxed. On the other hand, a lower age 62 benefit may mean that the taxpayer will not meet the “combined income” threshold for benefits inclusion.

Empirical studies have been done which generally arrive at the same conclusion. Early bird collectors are ahead of the game for about 12 to 15 years and then are left behind the higher benefit collector. Thus, where a person is in good health and foresees another 10 + years of retirement life, it is probably better to defer taking benefits until normal retirement age.

Of course, a universal rule for when to take benefits is impractical. Depending upon an individual’s circumstances, it might make more sense to begin taking benefits as soon as possible regardless of the net economic benefit in the future. This brief article is no substitute for a careful consideration of your unique personal situation. Before making any significant retirement planning or tax strategy, consult your financial planner, attorney or tax advisor, as appropriate.