After years of paying into Social Security, those nearing retirement have some choices to make about when they should begin withdrawing their benefits.
To receive full benefits, those born from 1943 to 1954 can take retirement at age is 66. The full-benefit retirement age rises to 67 for those born in 1960 and later. But you can start taking Social Security as early as 62 -- but receive less per month -- or wait until age 70 to start getting payouts.
According to Drew Horter, president and chief investment strategist at Cincinnati, Ohio-based Horter Investment Management, as much as 90 percent of people don't maximize their Social Security benefits.
"There are a lot of factors that go into when you're going to make that claiming decision," says Don Riley, chief investment officer for the Wiley Group, based in West Conshohocken, Pennsylvania.
Do you really need the cash? How do you know when to file for your benefits? Factors include how long you think you're going to live and whether you need the income now, or later.
For some people who have saved enough or have a big enough portfolio, or if they have a spouse that plans to keep on working, it may be worth deferring, Riley says.
The biggest factor that comes into play is whether a retiree needs the money, says Mike Prendergast, a director with New York-based Altfest Personal Wealth Management. "A lot of people take it at 62," he says, but that tends to be out of necessity, such as not being able to find work.
But you should also take into account your health and your projected life expectancy. If you're single and your family has a history of early mortality, then you should consider taking Social Security early, Riley says.
If you take Social Security at your full retirement age, you get 100 percent of your benefits. If you defer, then the benefits increase by 8 percent per year until age 70. But claiming early will cause a reduction in benefits for every year you take them early.
Depending on a person's financial resources in retirement, it may be helpful to view the choice of when to start collecting benefits as either an insurance decision or an investment decision, says Neil Krishnaswamy, a certified financial planner with Exencial Wealth Advisors in Oklahoma City.
For those with lower resources, the biggest risk factor is outliving their money, he says. Deferring taking Social Security can be viewed as insurance against this longevity risk, he says.
[Read: 9 Steps to Take Before Retirement.]
The trade-off is that one would have to use other resources such as investment assets in the meantime. Most people claim Social Security early precisely because they don't have the resources they need, he says.
But those in a more secure financial position can look at when to take out Social Security as an investment decision based on a break-even analysis, he says. That calculation involves comparing total Social Security income from different ages through an expected maximum age, Krishnaswamy says.
Someone with a retirement age of 66 who waits until 70 to take Social Security would receive a benefit 76 percent greater than someone the same age who began taking the entitlement at age 62, he says.
"If you can claim later ... I am in favor of that," Krishnaswamy says.
The spousal benefit. People who are married have the option to take a spousal benefit. At full retirement age, one can take half of what the spouse is eligible for at full retirement age.
For example, if a couple is individually entitled to $2,000 and $800 at their full retirement ages of 66, the spouse with the smaller benefit could claim a spousal benefit of $1,000, increasing the couple's total income by $200 a month over what they would have gotten if the lower-entitled spouse had claimed on their own work record, Prendergast says.
It can also make sense for the spouse with the larger entitlement to defer benefits. That's because the benefit would be greater for the surviving spouse if the higher wage earner died first. "You're looking to protect your spouse the longer you delay," Krishnaswamy says.
There are also nuances to consider for divorced people, Prendergast says.
If a marriage lasted 10 years or longer and a person hasn't been remarried, they could potentially claim a Social Security divorced spousal benefit on their ex-spouses record, he says.
When applying for Social Security people can go to the government website, but Riley often recommends people go to their local Social Security office to get questions answered there.
"Social Security is a big, complicated topic," Prendergast says.
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