Deciding when to apply for Social Security

The Social Security Act became law 77 years ago last month. All these years later, the No. 1 question that I field about Social Security is, "When should I take it?"

The answer depends on your individual circumstances, but the good news is that there are a great many tools available to help you navigate the process.

First things first. To qualify for retirement benefits, you need to have worked at least 10 years. You can check on where you stand with Social Security's easy-to-use online benefits statement at socialsecurity.gov /mystatement, which is the information the administration used to mail to your house. (For those 60 and older, you should still be receiving paper statements via "snail mail.") The statement shows your annual earnings history, which is a helpful stroll down your employment history lane.

Your statement will provide your estimated monthly benefits payment at your "full" retirement age, commonly referred to as FRA. Full retirement age varies -- it depends on when you were born; if that was before 1938, your FRA was 65; from 1938 to 1942, your FRA rises by two months for each additional year; between 1943 and 1954, it's 66; from 1955 to 1959, it rises two months per year; and from 1960 on, the age is 67. You can choose to claim benefits as early as age 62, but your benefit will be permanently lower -- for some as much as 25 percent less.

This is when the decision-making comes in. When does it make sense to file early? Should you wait until your full retirement age? Should you put off filing for benefits until the maximum benefit age of 70?

There are a number of tools that can help you crunch the numbers. AARP has a free online calculator (aarp.org/ work/social-security/social-

security-benefits-calculator), and there are several online calculators that charge fees which may intrigue you, including MaximizeMySocial

Security.com, SocialSecurity Choices.com and SocialSecurity Solutions.com.

Here's the general gist: Delaying Social Security makes financial sense, with one caveat: You have to live long enough for the trade-off to work. In other words, if you knew when you are going to die, I could tell you when to file for benefits! In essence, you make a bet on your life expectancy.

If you delay retirement until after your full retirement age, you are entitled to "delayed retirement benefits," or 8 percent a year more for each full year you delay, until age 70. Sounds like a sweet deal, but, of course, you are not receiving the monthly income for those years. Additionally, one reader said she was more comfortable taking her benefits next year at her full retirement age because "who knows whether the structure of Social Security will change as a result of the national debt debate in Washington, D.C.?"

I don't think those who are close to retirement (over the age of 55) need to worry about big changes to their benefits, but I take her point.

Here's how the numbers break down: If you live beyond 78, it makes sense to forgo Social Security benefits between the ages of 62 and 66; if you live beyond 821/2, it makes sense to delay benefits until the maximum level, at age 70. You may be wondering, "How do I know when I'm going to die?" You can take an educated guess based on your general health and your parents' health, or you can plug in your personal information at livingto100.com, which may help you get closer to a more data-driven number.

These mathematical acrobatics could be moot for some people who lost their jobs sooner than expected and desperately need income. If you do claim benefits early and then are lucky enough to land a job, you will be subject to an annual "earnings test," or threshold, which is $14,460 in 2012. Social Security withholds $1 for every $2 earned above that year's threshold, until you reach full retirement age. The ratio changes to $1 for every $3 earned during the year you reach full retirement age.

Next week, I will discuss additional Social Security strategies.

Jill Schlesinger is editor at large for CBSMoneyWatch.com and writes this column for Tribune Media Services.