"People believe that Social Security is something they get when they turn 65. They think there's only one calculation: I'll apply when I stop working," said Rebecca Hall, a private wealth adviser with Ameriprise Financial in Reston, Va., in a recent interview.
How and when you take your benefits, however, can make a difference of thousands of dollars in how much money you draw from the system over the course of your retirement.
And for many Americans, that difference can be crucial. Some 60 percent of Americans 65 and older depend on Social Security for the majority of income, according to an Economic Policy Institute study published last year.
Dependence on Social Security is only likely to grow. As employer-administered pensions continue to come under strain and 401(k)s prove less sturdy than once thought, Social Security is for many the only leg left standing in the three-legged stool model of retirement. (Read more: Should the 401(k) Be Reformed or Replaced?)
The Boomer generation currently on the verge of retirement, and whose retirement investments have the least amount time to recover from the 2008 stock-market dive, is also less likely to have pensions to fall back on. "They are of the generation that moved around a lot — not many worked for same company for 25 years," Hall pointed out.
For wealthier Americans who have saved consistently, Social Security may be an afterthought in their retirement planning. Hall, like other financial advisers, believes that means testing for Social Security recipients is inevitable, and counsels higher-income clients not rely on it in retirement. But the higher your lifetime income, the more you have to gain by knowing the rules and maximizing your benefits.
The earliest anyone can apply for benefits, unless they are disabled or widowed, is at age 62. This is considered early retirement, though, and if you wait until "full retirement age" — 66 for anyone born before 1955, and scaling up to 67 for those born in 1960 or after — you get a sizeable bump. If you wait until age 70, you get the highest benefit.
But the first question about Social Security benefits is not really "When?" but whether you are still making money. If you claim before full retirement age, earned income (salary, consulting fees, and dividends, but not employee pension payments) over a certain amount gets counted against your Social Security benefit — if you are earning more than about $1,150 a month, they take a dollar out of your government check for every $2 you make for yourself.
Past your full retirement age, the income limits drop away, and the base amount of your benefit goes up, by as much a seven percent per year, or $500 more a month when you start to take your check, in one model presented in the BMO study. Waiting until 70 increased the payment in that calculation to eight percent a year, and a $640 monthly hike in the monthly check. (Read more: Social Security Payments Go Electronic)
Waiting, then, looks like a no-brainer, right? Not quite.
Like any investment decision, your Social Security will be a balance of income versus risk, and there's a risk to waiting. Hall offered the example of a retiree weighing whether to take a benefit of $1,400 per month at age 66, or wait until 70, when their check will be $1,800.
That $400 bonus for waiting looks enticing until you do the math. "I'll have given up $67,200 waiting to turn 70," said Hall. "It would take me 168 months, or 14 years, to earn that back. That's a pretty big bet."
It's a bet most of the American public declines to make. Though 91 percent who answered the BMO survey recognized that waiting increases their monthly check, 48 percent are now or plan to collect before full retirement age," this week's report said.
If you're married, the question of when to apply gets more complex. "For couples," said Hall, "you have the issue of whose benefits do I take?"
This is because the federal government recognizes a spouse's sweat equity in the couple's financial position. Social Security allows married retirees to choose between their own benefit or up to 50 percent of their spouse's benefit — as long as the spouse has already applied. "One downside to waiting is that you could deprive your spouse of a higher benefit," said Hall.
If the spouse is still earning income, he or she can apply but suspend their benefits, and take their accrued benefits as a lump sum later. "That triggers a spousal benefits, and it gives you more flexibility," Hall said, but invites the same risk of waiting.
It's no wonder that more than half of those surveyed by BMO felt they were not sufficiently informed about their Social Security options, and almost half were not aware of spousal benefits at all, particularly divorced spouses who are often eligible to receive benefits based on their ex-partners income.
So complex are the calculations that Hall often schedules an information session with a Social Security administrator and accompanies her clients to the local office. "They can't advise you," she said, "but they are willing to guide you."
The only thing they won't likely tell you is how long the program is going to last.