Whether your retirement age is just around the corner or decades over the horizon, it’s never too soon for tactical retailers to start planning ahead. The choices you’ll face can seem endless — everything from where you’d like to live to how you’d like to spend those years when you don’t have to come to work anymore. But one decision you’ll have to make could prove especially tricky: when to start collecting Social Security.

If you’re tempted to skip the rest of this column because your own retirement is 20, 30 or more years in the future — hold that thought.

This decision is going to sound deceptively unremarkable, one you might be tempted to brush off as no big deal. But don’t be fooled. No matter your age, that decision has important implications for you here and now. And what you do now can help you make a much better choice when those golden years arrive.

So the answer about when to start collecting Social Security benefits may seem obvious — “Well, duh, when I retire!” Yes, for some people, that really might be the best answer. But it’s important to understand all your options and what those options mean if you’re in your 20s or 30s and just welcoming your first child instead of your 50s or 60s and about to get your first or second grandchild.

TIMING IS KEY

The first thing you need to know is how much you will get each month from Social Security — depending on when you start taking it. We still casually refer to 65 as retirement age. But for Social Security, that hasn’t been true for a while. For people born between 1943 and 1954, the federal government’s so-called Social Security full retirement age — the age at which people qualify for their full Social Security monthly payment — is 66 years old.

If you were born between 1955 and 1959, your Social Security full retirement age creeps up year by year in two-month increments: 66 and 2 months if born in 1955, 66 and 4 months if born in 1956, and so on. And if you were born in 1960 or afterward, the Social Security full retirement age is 67.

You can start taking Social Security sooner, starting at 62, but your monthly amount could be discounted by up to 30 percent depending on your birth year. But that’s not all. If you delay taking Social Security past your “full retirement age,” you can actually get more each month. The longer you delay, up until you turn 70, the more you can get. Suppose you were born in 1956. You’d qualify for “full retirement benefits” this year. But if you can delay taking Social Security until 2026, you’d get almost 30 percent more every month.

If you took the cash at the full retirement age and simply invested it, could you actually count on a consistent 8% return each year? If you’re lucky, maybe. By delaying, however, you’re effectively adding about 8% every year to your monthly benefit.

“It’s about as close to a guarantee as you can get,” says Kyle Tetting, director of research for Landaas & Co., a Milwaukee investment management firm.

The same advantages for delaying taking Social Security, and penalties for taking it early, affect spousal benefits, he points out.

GETTING GOOD ADVICE

So given a strong incentive to delay, why do some people choose not to, or even give up more by starting Social Security early?

“A lot of people are concerned they’re not going to maximize what they can take out,” Tetting says. Some may fear Social Security benefits will be cut in the future. Others might worry that they won’t actually live long enough to benefit from the higher payment they’d get by delaying.

But people are also living longer. As you get older, the real-dollar value of your monthly benefit will erode over time. By starting later and maximizing your monthly benefit, you can protect against that erosion.

Of course, every individual’s situation is different. There may be reasons you need to take benefits sooner. Be sure to work with a financial advisor who knows your specific circumstances and can guide you accordingly. Another important source of information is the Social Security Administration itself. SSA employees can give you a lot of information about how much you’ll get under various scenarios that you can use to help determine your best course of action.

What they won’t do is advise you on the best strategy for your circumstances. “So that means you’ve got to talk to friends or a colleague about who they know who might be an expert in that area,” Tetting says. “That’s especially important for those individuals who might have more difficult situations.” That may be a spouse without an employment record or perhaps a divorce in their past, which might create an opportunity to build benefits through a former spouse.

“All of those are situations that are a little bit more nuanced than just, ‘Hey, you should wait until age 70 to claim,’” he points out.

STARTING EARLY

By now you can probably see why it’s important to have other resources besides Social Security when you retire. For instance, if you have a solid stash in your 401(k) or individual retirement account, you might still be able to retire at 65 or 66 while delaying taking your Social Security benefits. Of course, it can work the other way, too. If you are retiring in the middle of a down stock market and your investments have taken a beating, you may decide to apply for Social Security sooner while your private account recovers. Again, this is a time to seek professional advice.

“The challenge here is that 70 percent of workers say they plan to work until 65, but the median retirement age really is about 63,” Tetting says. That means that, for a couple of years, people are at risk for not having an income when they thought they would still be drawing a salary.

“You almost always have to draw down from savings that you weren’t planning on drawing down from, or you’re forced into this situation when you take Social Security earlier than you planned to,” he says.

And that’s why it’s never too soon to think about when you want to take Social Security and to plan for those situations.  

“The key for younger workers is that planning for retirement is best done early,” Tetting says. “And if you consider Social Security payments to be part of your retirement income strategy, you don’t just decide at 65, ‘Oh, I’m going to claim,’ because you’ll have no idea what you’re owed.”

Tetting routinely urges his younger clients to get in the habit of checking their work record with the SSA’s website to make sure they’re properly being credited for their earnings. “Ultimately, their payments are going to be based on what’s been reported,” he observes. “Mistakes are made — not all the time, but often enough — and it’s going to be more difficult to correct at age 65 than it was back at age 35 when you first noticed a mistake.”

If at all possible, workers need to understand as early as possible “that Social Security is not going to be the only source of retirement income for them,” he adds. “If they wait until age 55 or 60 to figure that out, it’s too late to save.”