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Under New Law Taking Social Security at 65 Makes Sense for Most

Does it make financial sense to begin taking Social Security retirement benefits when reaching age 65 or is postponing the benefits a better option? Social Security benefits increase by 6% for every year beyond age 65 that they are not taken. In certain limited circumstances, it may make sense to delay.

A change in federal law in the year 2000 allows people to continue to work after age 65 without incurring any financial penalty with regard to their Social Security benefits. Therefore, in most situations, taking benefits should not be delayed.

What the new law does. Under prior law, an annual earnings limit applied to people aged 65 to 69. For every $3 earned over the limit of $17,000 (the year 2000 amount), $1 in Social Security benefits had to be given back to the government. Under the new rules, individuals aged 65 or over can earn as much as they please without having to forfeit any Social Security benefits. For people aged 70 and over, there wasn’t an applicable limit on earnings.

People aged 62 through 64 who have begun taking Social Security benefits are still subject to an earnings limit. They must return $1 in benefits for every $2 earned over the limit. For 2002, the annual earnings limit for such individuals is $11,280.

Who should delay beyond age 65? The short answer is that most people are better off taking their retirement benefits at age 65, because one must live a long time to recoup the value of the foregone benefits. For example, if one is 65 and they delay the onset of benefits until age 70, they could end up receiving as much as $430 per month more by the time their benefits begin. However, to make it financially worthwhile to delay the benefits, they would have to live well past age 85.

The analysis of this question depends on several factors, in addition to how long one will live. These include: (1) how much will the Social Security benefit be, (2) one’s tax bracket, and (3) how many years before the benefits will be taken.

For further information, contact Diane M. Pearson, CFP™ at (412) 635-9210 or

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