SOCIAL SECURITY, SOONER OR LATER? KEY QUESTION FOR RETIREMENT

If you're making financial plans for the future, a Social Security benefit estimate statement can be a helpful tool.

"This statement the SSA7004 form not only will tell you how much you can expect when you retire, but will provide estimates of any disability benefits you might be eligible for," said Gary Eason of the local Social Security office, located in the federal building, 339 Broadway. "The estimate statement is useful for retirement planning."

Social Security offers persons a choice in retirement benefits full monthly payments at age 65, or reduced payments at age 62.

The trade-off for claiming SS checks as early as possible is that your benefits will be reduced by 20 percent - for life.

"That can mount up to as much as $200 a month if you're drawing maximum benefits," said Eason.

But as bad as that sounds, each year about half of the applicants for benefits sign up at age 62 for the smaller checks.

"It all depends on your situation," explains Eason. "If people are not working at age 62, they'll sign up for Social Security benefits. I would estimate that about half of the people who are eligible in this area do sign up for the early benefits.

Why the rush?

"In some cases, starting the benefits early is essential to financing an early retirement," said Eason. "And, in some cases, it can make economic sense."

Even at reduced levels, he said, checks collected between ages 62 and 65 will give you a big head start over someone who waits until age 65.

It will take from 12 to 15 years of fatter checks to catch up with the total payments made to the early retiree.

"And, if you invest the early payments and take those earnings into account, the break-even point is even further away," added Eason.

The maximum Social Security retirement benefit at age 65 is $1,022 each month. Knock off 20 percent of that total and the benefit at age 62 is right at $820 monthly.

The closer a person is to 65 when benefits start, the smaller the reduction. For example, the reduction is just over 13 percent at age 63, and only 6 2/3 percent at age 64.

"There are times when it will pay to wait," said Eason. "People under the age of 65 who plan to continue working will be limited as to the amount of money they can earn."

A chart, provided by the Social Security office spells it out.

If you're planning to work past age 62 and expect to make more than the earnings limit for Social Security recipients, you're better off delaying benefits. For those age 62 through 64, benefits are reduced $1 for every $2 earned over $7,080; at ages 65 through 69, the reduction in benefits is $1 for every $3 earned over $9,720.

Following is an example of a 65-year-old worker:

Mr. X receives benefits in the amount of $800 a month ($9,600 a year). He earns $20,000 a year. The earnings limit for a person 65 years old is $9,720 per year. Deducting that from $20,000 leaves a balance of $10,280. In accordance with the 1/3 SS formula, he will lose $3,426 from Social Security, receiving only $6,174. That places his total income at $26,174.

If, on the other hand, Jones limits his outside income to $9,720, he will receive all of his SS benefits, $9,600, for a total income of $19,320.

If Jones had been 62 years of age, the benefits would have dwindled even more, with the 1/2 formula.

People over 70 do not have an earnings limit.

Current tax law favors holding out for full benefits if your income (including half of your Social Security benefits) is high enough to trigger a tax on your benefits.

If your income exceeds $32,000 on a joint return or $25,000 on a single return, as much as half of your benefits will be taxed.

The big potential plus of waiting to collect Social Security until age 65 means you'll get bigger checks.

Moreover, chances are you'll live long enough to recoup the money you passed up by not retiring at age 62.

As noted above, you break even after about 12 to 15 years of higher benefits, or at age 77. According to life-expectancy data from the National Center for Health Statistics, the odds are in your favor.

The life expectancies for 62-year-olds are as follow: White females are expected to live to age 83.1; black females, 81; white males, 78.9; and black males, 77.1. As life expectancies for all races and both sexes increase, the advantage of taking lower benefits at age 62 diminishes.