Calculating when to start collecting Social Security

Richard Broadway, 66, doesn’t intend to retire.

“When you retire, you die,” he said. “I always want to do projects of one nature or another.”

But the Newport Beach resident and partner in a dental-product business is old enough to receive Social Security benefits. And he’s wondering whether he should.

The question is echoed by many seniors.

If you can start getting monthly Social Security payments at age 62, why would you put it off? The reason is that the longer you wait, the bigger your monthly payment will be.

In Broadway’s case, waiting an extra year would boost his monthly payment by 8% -- a differential that would last the rest of his life, regardless of the size of annual cost-of-living adjustments.

If he waits until he’s 70 to collect, his Social Security annuity will be 32% higher than if he starts getting benefits now. That’s nothing to sneeze at.

Meanwhile, those who are younger than Broadway will have their payment reduced if they start collecting before their “normal retirement age,” which ranges from 65 to 67, depending on the year they were born.

Let’s say this week you turn 62, the age at which you can first receive benefits. Your monthly payments will be 25% less if they start now than if they start when you’re 66, your normal retirement age by the government’s reckoning.

Of course, if you delay collecting to increase your monthly payment, you’ll also receive fewer payments. How can you maximize the total amount you receive?

According to Social Security actuaries, if you live until you’re 77 to 78, you’ll end up with the same total dollar amount regardless of when the payments start.

If you live past age 78, delaying payments will have paid off. If you die before age 77, early collection will turn out to have been the better option.

But predicting how long you’ll live is notoriously difficult.

Bruce Schobel, a Social Security expert with the American Academy of Actuaries, says his grandparents lived into their 90s and his parents are still going strong. That would suggest he would be better off waiting until age 70 to receive payments.

“But I could go out and get hit by a bus tomorrow,” he said. “The bus wouldn’t know or care that I was supposed to live into my 90s.”

That can argue for a “bird in the hand” mentality and help explain why about two-thirds of retirees take benefits the first chance they can -- at age 62.

Is that the best way to go, if you’re in ill health and figure you won’t live past 77? Yes -- if you’re single, Schobel said. But if you’re married, you need to think twice.

That’s because many retirees claim benefits based on the work record of their spouses. If your husband or wife earned significantly less than you -- or took time off to raise children -- he or she may want to claim benefits on your record.

But if your spouse does that and you claim benefits early, his or her maximum benefit will also be affected.

“That can cost your spouse a fortune over time,” Schobel said.

Then, too, some people claim benefits early not because of some forward-looking calculation but simply because they need the money. The government says about a third of Social Security recipients rely on their benefits as their primary source of income.

Broadway, however, is probably best advised to claim benefits late. He’s still working and doesn’t need the benefit payments to live on. His family history -- his grandfather lived to be 103, he said -- indicates he could be around a long time.

Broadway is also married, so postponing the start of his Social Security payments could boost his wife’s survivor benefits if he dies before she does. (When a spouse dies, the survivor either continues to receive his or her own payments or gets the late spouse’s monthly benefits.)

“I’ve heard that the best thing to do is wait until you’re 70,” Broadway said. “But it’s really complicated.”

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Kathy M. Kristof welcomes your comments but regrets that she cannot respond to every question. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For past Personal Finance columns, visit latimes.com/kristof.