To defer or not to defer?

That is the question that advisers must be prepared to answer for clients trying to figure out when to begin taking Social Security payments.

Individuals are allowed to start receiving benefits at 62, but monthly payments are higher if they wait until the full retirement age of 66 or 67, depending on their birth year. And monthly benefits are still higher if beneficiaries can hold off until 70.

“The general rule is to defer Social Security payments until the latest time possible,” says Michael Dixon, an adviser at Your Planning Partner in Palm Beach Gardens, Florida. “Deferral is one of the best retirement tools you can have.”

The math works like this: For those who start receiving their Social Security checks up to 36 months before the full retirement age, their benefit is trimmed by five-ninths of 1% for each month. For those who begin more than 36 months before full retirement age, the payment is cut by another five-twelfths of 1% a month.

Those who don’t begin taking payments at the full retirement age receive an 8% increase for each year until age 70.

These numbers lead Dixon to say, “I’m a deferral guy.”

But he and others say that there are important exceptions to the rule.

Health and income concerns can make it advantageous for people to begin taking payments as early as 62, advisers say.

“Income is a big issue for people who don’t have a sizable portfolio,” says Jack Riashi, a CFP and adviser at Bloom Asset Management in Farmington Hills, Michigan.

Some people need Social Security payments for their living expenses.

In addition, if an individual isn’t going to live long enough to see many Social Security checks, they are better off beginning payments early.

“If you have a life-threatening disease, you may want to apply earlier,” Riashi says.

Dixon guides his clients through an extensive review to determine when they should start their Social Security payments.

“We look at their overall financial circumstances,” he says.

“What is their income, do they want to continue working, what lifestyle do they want in retirement, what is their health? For the average person, Social Security isn’t on their mind,” Dixon says.

The math involved in figuring out when to begin benefits can become quite complicated, especially for married couples, as benefits are sometimes transferrable to a spouse upon death. Dixon uses two software programs to help with the calculations: Income Solver and SS Analyzer.

This story is part of a 30-30 series on Social Security.

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Dan Weil

Dan Weil’s work has appeared in The New York Times, The Wall Street Journal, Bloomberg, Institutional Investor and Tennis magazine.