written by A.T. "Al" Benelli, CFP, FIC |  

Each and every day, approximately 10,000 baby boomers celebrate their 65th birthday. Most people identify the arrival of age 65 with the event of “retirement” and the receipt of Social Security benefits. Actually, the age of full Social Security retirement benefits for most baby boomers is currently age 66. Reduced benefits with earned income limitations can be taken as early as age 62. Should you take the money at 62 or 66 or somewhere in between? So, what’s best?

According to the Social Security Administration, a typical 65 year old today will live to age 83. One in four will live past 90 and one in 10 will reach 95 or beyond. most financial decisions, everyone’s situation is different. If you take a lower amount early, you may not have enough income to sustain an extended retirement. Conversely, if you wait and then take the larger sum, you’ll be receiving the income for fewer years. So which is best?

Well, since none of us really know exactly how long we will live, it’s a good idea to evaluate your personal situation and understand the present value of your options. Here is where a fully qualified financial professional can help.

Working with tools available from the Social Security Administration an individual can calculate the “break-even” point where early and late benefit choices will cross. For instance, in my own case, if I take my Social Security benefits now, I’ll start receiving income, and I’ll also have some limitations on what I can earn before giving back large portions of that income. Assuming I don’t hit my limits, I’ll have gotten years of reduced benefits prior to age 66. However, if I wait until 66, I’ll get a bigger check with no limitations. According to the calculator on www.socialsecurity.gov , if I live to age 74 + four months, the larger payments will have caught up with the lower ones and I break even. In other words, if I make it to age 74 + four months, I’m ahead of the game for the rest of my life. Time to chat with my doctor? Probably a good thing, because if I have serious health issues, the lower benefit earlier might be the wiser financial choice. If I fear that Social Security might go broke before I’m 74+four, I might want to take the money now while there’s still money to take. If I believe Social Security is solvent and/or Congress will fix whatever’s wrong, I might be more prone to wait for more bucks later on. But that’s looking at only two options.

What if I were to do some advanced planning, take the lower, earlier payments, and rather than spend them, invest them in a “side fund” that might earn interest, or capital gains, or grow in some other way at, let’s say 4 percent? And then when I reach my full retirement age of 66, take from my personal “side fund,” the difference between my lower and full monthly benefit amount? If I did that, how would that affect my “break even” date?

This is hardly mathematics for the novice. Here is...