Prevailing logic is that citizens should wait as long as possible to collect Social Security so their payments will be higher, say BlackRock experts, but there are special circumstances when a recipient can benefit by collecting early.
Those who opt to collect Social Security at age 62 will reduce their benefits by 20 percent to 30 percent, depending on their normal retirement age, which could amount to hundreds of thousands of dollars in lifetime payouts, says Chad Terry, director of Investment and Retirement Education for BlackRock Inc., the world's largest asset manager.
But in some instances, collecting benefits early actually makes financial sense: For instance, the lower earner in a married couple may want to collect as soon as possible while the higher earner waits as long as possible.
"It's the way survivor benefits work," says Ron Kron, director of BlackRock's advisor education group. "When the higher earner passes away, the lower earner has in essence the ability to inherit the higher earner's benefit, making their own benefit no longer relevant. The sooner the lower earner starts collecting, says Kron, the better off they're going to be. Because at some point, that benefit is going to stop being relevant and they're going to switch over to that higher survivor benefit."
Kron says potential Social Security recipients can benefit if they have dependent children living at home. As soon as those recipients begin to collect Social Security, their children become eligible. "It's a benefit that not everyone is aware of and that could influence someone's decision regarding collecting early."
Spousal benefits are especially vital for women, say experts. They are more likely to take time out of the workforce and tend to have lower career-long earnings, which consequently cuts their Social Security benefit levels.
And since women tend to live longer and outlive their spouses, they often collect survivor benefits based on their husbands' benefit levels, says Kron. Women tend to be more dependent on Social Security, particularly at advanced ages, and thus the age at which their spouses collect Social Security significantly affects their own retirement income.
Financial advisors, says Kron, should also talk to their senior clients who are survivors or widows about taking the government's survivor benefit as early as possible starting at age 60 while letting their own benefit continue to grow, and then switch over to that higher benefit at age 70.
Contributing to citizen confusion about Social Security is the dearth of available information on what to do when that eligibility day arrives. "When we all bought Social Security, we really had no idea of what we had started to buy," Kron said. "When you get to age 62, you're really not any more informed than you were that day that first deduction was taken out of your paycheck."
Another prevalent Social Security misconception: It kicks in automatically for all recipients. "Nobody gets a letter in the mail saying, 'We have a whole lot of money here that we can start sending to you,"' Kron said. "The lack of awareness around how dependent this benefit is on your action is also a big problem."
Kron recommends that people approaching age 62 consult a financial advisor. Not only is when to take benefits a complex decision, but the right choice for a client often has a lot to do with the other assets he or she has, the taxability of those other assets and ultimately what income streams they want to generate in retirement.
"This boomer generation is facing increased longevity relative to their parents," Kron said. "So with this increased retirement period you need to think a lot longer and more thoroughly about what income plan you are going to put in place, so what role is Social Security going to play in that?"
Given that many in the first wave of baby boomers are already collecting their Social Security benefits and there are legions behind them to come, there's an ever increasing pool of recipients who are ready to begin collecting their benefits. "Suddenly you have this huge influx of new recipients calling up, unaware of their options, maybe many hearing theses rules of thumb of taking their benefits as soon as possible," Kron said.