When You Should Take Social Security

Most 55-to-64-year-olds will rely on it when they retire.

Social security card in wallet
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Knowing when to claim Social Security benefits can be an integral part of retirement planning. Though it may be just one source of income, it can be the most important one, partly because it can continue to grow larger until you reach age 70. It's also generally taxed at a lower rate than other sources of retirement income, says Virginia P. Reno, vice president for income security policy at the National Academy of Social Insurance, a Washington, D.C.-based research organization.

"Social Security is unique among pensions because it continues to have a larger payout for every year that you delay taking it," she says, adding that when it comes to nest eggs, most Americans ages 55 to 64 have a relatively small one, so will rely mostly on Social Security during retirement. The large majority of seniors count on Social Security for most of their income after age 65, and that has been the case for 30 years, she says.

Of households ages 55 to 64, 60 percent had retirement accounts with a median value of $100,000, according to the Federal Reserve Board's Survey of Consumer Finances. That means half of the accounts have more and half have less. In addition, 40 percent of 55-to-64-year-olds don't have retirement accounts. So 70 percent of those ages 55 to 64 had less than $100,000 in their accounts, Reno says. The most recent data available is from the 2010 Survey of Consumer Finances, and the data was flat between 2007 and 2010; the Federal Reserve Board is working on the 2013 survey now.

If you are one of the baby boomers who hasn't prepared so well for retirement, here's how to get the most out of Social Security benefits, depending on your situation:

[See: 6 Ways Retiring Can Be More Affordable.]

If you're married: If you're married, as you calculate when to claim your Social Security benefits, think about the future, when one spouse will most likely die before the other. If both spouses have worked enough to qualify for their own benefits, it's important to coordinate when each will claim their benefits. For married couples, it's particularly important for the higher earner to delay because that amount becomes the survivor benefit for whoever lives longer, Reno says.

If you are single: It's critical to max out your benefit by waiting until 70 if you can, because this may be the only – or major – source of income you'll have unless you have a pension, a significant amount of money in your 401(k) plan or you have socked away in excess of $400,000 in retirement savings in case you live 20 years in retirement, says Mary Hunt, author of "The Smart Woman's Guide to Planning for Retirement." If you wait until 70 to take your Social Security, and live another 20 years, you'll have a running start at having enough funds. "Keep in mind that these seriously rough figures do not allow for inflation or make any attempt to figure out what taxes will look like years or decades from now," Hunt adds.

If you have an IRA or a 401(k) plan: Making the transition to retirement – whether you phase out of working full-time or stop working completely after many years of employment — isn't necessarily easy. "People have been working and saving all their lives and can't conceive of taking out money from their IRA," says Sharon Lacy, financial planning manager for Bedrock Capital Management, Inc. She cites a 59-year-old man who is still working but can't imagine contributing to an IRA for years and then withdrawing from it. When people stop working, they often don't have a plan. In this case, postpone taking Social Security until 70, and withdraw funds from your IRA, Lacy says. In this way, "your total taxes for your lifetime are going to be lower," according to Lacy's calculations. "An IRA is 100 percent taxable but only up to 85 percent of Social Security is taxable," she adds. If you take Social Security at 70, "you'll have more money available for your retirement years."

[See: 13 Money Tips for Married Couples.]