Sept. 10--The oldest Baby Boomers began turning 66 this year -- the full-retirement age for collecting Social Security benefits -- but many are claiming their benefits early because of the troubled economy, poor job market and fears about potential changes to the retirement system.

Unfortunately for some retirees, the decision to claim their benefits early could cost them tens of thousands of dollars down the road.

Three out of four eligible area residents start taking Social Security retirement benefits early, even though for some people the decision will permanently reduce their lifetime payments and could cost retirees or their spouses some important income later in life, according to a Middletown Journal/Hamilton JournalNews analysis.

Social Security is the primary source of income for many older Ohioans and delaying benefits until the full retirement age or beyond increases the size of the monthly payments.

Ohioans who are in good health, intend to keep working, expect to live a long time and have spouses may want to delay claiming benefits because oftentimes it turns out to be a better financial decision in the long run, experts said.

"For some people it's worth taking early, like if you are unhealthy, you become unemployed or your investment returns are low or you really, really need income," said John Bowblis, assistant professor of economics and research fellow with Scripps Gerontology at Miami University. "But for the typical person, waiting until 66 is probably going to be a better solution."

Social Security retirement benefits are provided to people who have worked for at least a decade, and the payment amounts are based on workers' 35 highest earning years.

People can begin collecting Social Security benefits when they turn 62, but the full retirement age is 65 for people born in 1937 or earlier, and 67 for people born after 1960. Taking benefits before reaching the full retirement age reduces the size of the payments. People who retire at 62 will on average receive a monthly payment about 25 to 30 percent less than if they waited until their full retirement age.

Delayed benefits yield larger payout

Every case is different, but people who start receiving benefits earlier get smaller amounts because they are expected to receive more payments, and people who delay collections receive larger payments because they will receive fewer of them.

"It is a very individual decision, and what is the best route for one person is not the best route for another," said Theresa Busher, a Social Security Administration spokeswoman in Dayton.

Most people take their benefits early. About 131,827 of the 180,645 recipients of Social Security in Butler, Champaign, Clark, Greene, Miami, Montgomery and Warren counties began claiming retirement benefits at 64 or earlier, according to a December 2011 snapshot of recipients and benefits obtained by this newspaper. More than half of recipients in the seven-county region claimed their benefits as soon as they turned 62. In Ohio, about 73 percent of recipients claimed their benefits at 64 or younger.

Additionally, more Americans are taking the benefits early. In 2011, about 73.8 percent of the 35.6 million U.S. recipients of retirement benefits received reduced monthly payments because they took their benefits before reaching their full retirement ages, according to administration data. The share of recipients who received reduced payments for taking benefits early was up from 73 percent in 2006, 71.3 percent in 2000 and 68.4 percent in 1990.

But delaying claiming benefits until the full retirement age or later is a smart financial decision for many people, because at some point -- if a person lives long enough -- the payments from delaying surpass the payments from taking early retirement, said Mary Beth Franklin, contributing editor to InvestmentNews and noted expert on Social Security issues.

"Deciding the right time to claim for an individual can mean the difference between tens of thousands of dollars over his or her lifetime, and for a married couple, it can be more than $100,000 over their lifetime," Franklin said. "I think the biggest mistake is that people take Social Security as soon as they can simply because they can, without thinking it through."

Franklin said people who are sick or in poor health or who are unemployed and need income should take benefits once they becomes available. Similarly, people who do not have a long life expectancy should also collect early, because they have a shorter window for collection. But she said people should not claim early if they are healthy, have a family history of longevity and intend to keep working. For some people, it even makes sense to delay claiming benefits past the full retirement age, because the value of the payments increase by 8 percent each year they are delayed between the ages of 66 and 70, Franklin said.

"Your benefit at 70 would be 132 percent of what it would be have been at 66, and that's almost double the amount if you took it early at 62," Franklin said.

She said people who continue to work definitely should delay claiming, because they will lose $1 in benefits for every $2 they earn over the annual-earnings cap, which is $14,640 this year. The earnings test does not apply once people reach their full retirement age.

Delaying benefits and continuing to work has other economic upsides for retirees as well.

Benefit amounts are calculated using workers' 35 highest earning years, but some people do not have 35 years of work experience while others have some years where they earned very low wages, said Matt Rutledge, research economist with the Center for Retirement Research at Boston College. Workers typically earn their highest wages later in their careers, and remaining in the workforce for a few more years can boost workers' retirement benefits.

"For a lot of people who are still working and earning decent money, they are replacing lower-earning years with higher-earning years near the end of their careers, so they are increasing their benefits by continuing to work," Rutledge said. "You could have some years of zero earnings in there, if you started working later in your life or if you took some time off to have kids or care for a family member or something."

Rutledge said continuing to work also allows people to keep earning money, avoid dipping into their savings, access employer health insurance and add to their retirement plans. Many people are financially unprepared to retire in their early 60s, and delaying claiming benefits and continuing to work typically means people are contributing to their 401(k) plans and receiving employer matches.

Benefits are primary income source

Rutledge said it gets complicated, but deciding when to claim benefits also has ramifications for spouses.

Women on average live longer than men, and many men have wives who are younger and earn less than they do. The Social Security retirement system guarantees that spouses who claim benefits will receive at least half of what their partners do, and surviving spouses receive the full benefits of their deceased loved ones, if those payments are more than what they would have received on their own. Married couples should develop a retirement plan that maximizes potential collections and takes into account the difference in life expectancies of partners, experts said.

"Spousal benefits can be affected by a worker's decision about timing," said Sara Rix, senior adviser for the AARP Public Policy Institute.

It is important to carefully choose when to claim benefits because Social Security is a crucial source of income for older people, said Bowblis, with Miami University.

Social Security is the primary source of income for more than half of married couples 65 and older, and three-quarters of nonmarried people, the administration said. Social Security accounted for 90 percent or more of income for almost one-quarter of older couples and almost half of older, nonmarried people. The system's importance is growing, because the recession wiped out many nest eggs and defined-benefit pension plans are disappearing. About half of U.S. retirees die with less than $10,000 in savings, according to a report by the National Bureau of Economic Research.

Bowblis said many people are collecting Social Security because they were laid off late in their careers, and it is a difficult job market for older workers. He said also some people claim early because they are scared lawmakers will change the rules governing the retirement system, owing to the federal government's budget problems. Other people, he said, claim at 62 simply because their friends and family members did. But Bowblis said every person's set of circumstances is unique, and aging Ohioans need to consider their personal finances, health, family history, income and future work plans. He said even if there are any changes made to the retirement system, they would not impact people who are close to the retirement age.

"I don't see a reason for taking it early, but people are afraid Social Security will change or they are just doing what everyone else does," he said.

Bill Schindel, 65, will begin collecting benefits when he turns 66 in December. Schindel said he waited until reaching his full retirement age because claiming early would have cost him about $900 annually. He said he was in a position where he could postpone receiving the payments because he earned steady income from his computer business, and he owned an insurance business until last year. Schindel said he understands why some people claim early, but he recommends doing the opposite if possible, because it permanently increases benefits.

"Wait as long as you can," he said.

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