Why Did The Full Retirement Age Change
Full retirement age, also called “normal retirement age,” was 65 for many years. In 1983, Congress passed a law to gradually raise the age because people are living longer and are generally healthier in older age.
The law raised the full retirement age beginning with people born in 1938 or later. The retirement age gradually increases by a few months for every birth year, until it reaches 67 for people born in 1960 and later.
Taking Money From Your Ira Or Old 401 At Age 55
Substantially Equal Periodic Payments is the option for early retirees to access funds in an IRA or old 401 before age 59 1/2 without incurring a penalty. But there are rules.
At a high level, you have the choice of one of three IRS-approved distribution methods. Your required withdrawal is calculated according to the method you selected. You don’t get to decide how much you want to take out and when.
The payments must continue for at least five years or until you turn 59 1/2, whichever is later. If you start a SEPP program at age 55, you’ll be able to stop at 60. Failure to follow the SEPP rules will trigger penalties and interest.
And keep in mind, distributions from traditional 401 or IRA are fully taxable as ordinary income. If the distribution is less than ideal, you’ll wind up with even less to maintain your lifestyle. If you’ve been at your job for a very long time and have a large account, the Substantially Equal Periodic Payments could leave you with little control over your tax situation and force you to take more from your tax-advantaged accounts than you need long before Required Minimum Distributions begin at age 72.
Another option that might be available in some 401 plans is the ability for individuals who retire between age 55 and 59 1/2 to take money from their account after theyve retired and separated from service.
Full Retirement Age Affects The Amount Of Your Benefits And More
Full retirement age is the age at which you can claim your standard Social Security benefit, or your primary insurance amount , from Social Security. Your PIA is the standard amount you can expect to receive based on your inflation-adjusted average wages earned throughout your career. Full retirement age is 66 for those born in 1954 and 67 for those born in 1960 or later — it varies depending on your birth year.
It is important to know your full retirement age, as it affects when you can claim Social Security without reducing your benefits, the amount of delayed retirement credits you can earn in order to raise your benefits, and how much you can earn from working while receiving Social Security without forfeiting any of your benefits.;
When Can I Get Social Security
The earliest you can start receiving Social Security benefits is age 62. But the earlier you elect to receive your benefits, the smaller your monthly checks will be. To receive full benefits, you will have to avoid collecting Social Security until you reach your full retirement age. For people born in 1960 or later, that age is 67.
If you decide to retire early, you have the option of delaying your Social Security benefits. This strategy may work particularly well for married couples.
Tax Considerations For Social Security Benefits
How do these tax considerations affect when you should apply for Social Security benefits? At todays , they may not have much of an impact on most people. Still, tax rates and income thresholds can change, so its worth remembering that you will lose less of your Social Security to taxes if you are in a lower marginal tax bracket when you begin to collect.
You should also note that if you decide to return to work, even part time, and arent yet at your FRA, then your Social Security benefits may be temporarily reduced. The reduction is $1 for every $2 of earned income over $18,960 . During the year when you reach your FRA, your benefits will be reduced by $1 for every $3 in income over $50,520 until the month when you become fully eligible. That money isnt lost, however. The SSA will credit it to your record when you reach your FRA, resulting in a higher benefit.
Also Check: How Fast To Get Replacement Social Security Card
When Will My Pension Payments Begin
Your pension payments will begin during one of the following months, whichever is latest:
- the month after you meet the residence and legal status requirements
- the month after your 65th birthday
- the month you asked for your OAS pension to start in and that you meet all eligibility requirements
For information on payment amounts, visit Old Age Security payment amounts.
How Does Full Retirement Age Affect Your Social Security Benefits
If you claim your benefits at full retirement age, you will receive your standard Social Security benefit amount. If you claim prior to FRA, you will be subject to early-filing penalties that reduce your benefit by the following amounts:
- 5/9 of 1% for each of the first 36 months before FRA
- 5/12 of 1% for each subsequent month before FRA
This amounts to a 6.7% annual reduction for each of the first three years and an additional 5% reduction for each following year before FRA. If you claim benefits at 62 with an FRA of 67, you will face a full 30% reduction in benefits.
By contrast, if you claim benefits after FRA, you receive delayed retirement credits valued at 2/3 of 1% per month. This results in an 8% annual increase to your monthly benefit. Delayed retirement credits can be earned until age 70, after which time there is no financial benefit to delaying your claim. Delayed retirement credits cannot be earned if you are claiming either spousal or survivor benefits.
Recommended Reading: How To Fill Social Security Form
Provincial Territorial And Municipal Programs
Your provincial, territorial and municipal governments may offer income assistance and services to seniors. For more information, visit the Benefits Finder.
The Government of Canada provides information on retirement planning, including useful tools such as the Canadian Retirement Income Calculator.
Paying For Health Care
Medicare coverage doesn’t start until age 65. If you want to retire at age 55, you’ll need a source of health insurance that will provide for you until you reach age 65.
The;Affordable Care Act guarantees access to health insurance even with pre-existing conditions. You can’t be charged a higher rate for any health issues, but premiums are based on age. If you’re between the ages of 55 and 65, it can cost as much as $1,000 per month.
If you’ve had a healthcare plan and have been able to keep it, you might be able to keep your monthly payments down.
Some employers may allow you to keep your health insurance with them, but they might ask you to pay some or all of the premiums they have been paying.
The Kaiser Family Foundation has a calculator to view average health care premiums in your state. Depending on your income, you may be able to apply for subsidies. A single 55-year-old with an annual income of $60,000 can purchase a silver plan through the Marketplace for $360 per month.
You May Like: How Can I Lock My Social Security Number
What Do Federal Laws And Regulations Say About Age And Disability
The Social Security Administration discusses age as a vocational factor in disability claims in its regulations and internal policy documents.
Code of Federal Regulations Section 404.1563 states, in part:
We will not consider your ability to adjust to other work on the basis of your age alone. In determining the extent to which age affects a persons ability to adjust to other work, we consider advancing age to be an increasingly limiting factor in the persons ability to make such an adjustment, as we explain in paragraphs through of this section.
Commentary published with the SSAs Medical-Vocational Guidelines, also called the Grid Rules, provides additional insight:
Where age is critical to a decision, recognition is taken of increasing physiological deterioration in the senses, joints, eye-hand coordination, reflexes, thinking processes, etc., which diminish a severely impaired persons aptitude for new learning and adaptation to new jobs.
Put a different way: The Social Security Administration thinks that the younger you are, the more likely it is that you can acquire new job skills, adapt to new work, and compete with other job applicants even though you have a severe medical impairment. And the older you are, the more likely it is that you will have difficulty adjusting to new work, picking up new skills, and competing with other people when you have a severe medical impairment or combination of impairments.
Survivors Benefits If You Have Children
If your spouse dies and you have children with them under the age of 16, then , you can receive up to 75% of your spouses benefit. Similarly, if your spouse has children under 16 by a previous marriage, that spouse may receive up to 75% of your spouses benefit. Also, each child, up to the age of 18, or 19 if still in secondary school or disabledmay also receive up to 75%.
The maximum a family can receive is up to 180% of the workers PIA. If ex-spouses receive benefits, it does not in any way impact the amount a current spouse will receive . However, if you qualify because you have the workers child in your care, your benefit will affect the amount of the benefits of others on the workers record.
If a spouse or former spouse is not caring for the children of the deceased worker, they may still apply for benefits on their own, if they are at least 60 .
Also Check: Can You Get Ssdi And Social Security
How Does Social Security Know
You might wonder how the Social Security Administration keeps track of your work and your earnings. The answer: It doesn’t. It’s your responsibility to report how much you’ve made.
“The biggest thing to remember if you are working is to notify the Social Security Administration if you’re going to earn wages in excess of the earnings threshold,” says Matt Ahrens, an associate financial advisor at Integrity Advisory Group.
Otherwise, he notes, “They will not be notified of your earnings until you file your taxes the following year. And if you were receiving excess benefits, you can be fined, forced to pay back the excess, or receive lower future benefits.”
Don’t Underestimate How Long You’ll Live
People are living longer. This means your retirement savings have to last you longer.
Here are some statistics according to data from J.P. Morgan:
- A 62-year-old man has a 61% probability of living until 80 and nearly a one in four chance of living until age 90
- A 62-year-old female has a 71% probability of living until 80 and one in three odds of living until 90
- As a couple, there’s an 89% chance at least one spouse will live until 80 and almost a 50% probability that one person will live until 90;
Put another way, the odds of either you or your spouse living past 90 are roughly 50/50. If you retire at 55, you’ll probably spend more time in retirement than you did working. It sounds nice, but affording it requires lots of planning and a disciplined approach to saving and investing.;
Recommended Reading: How Do I Get My 1099 For Social Security
Grid Rules And Social Security
There are two forms of qualification for disability benefits: approval based on the Blue Book, or approval based on a Medical Vocational Allowance. The Blue Book is a medical resource outlining exactly what test results or symptoms you’ll need to qualify, while a Medical Vocational Allowance approval determines how much work you’re able to perform with an illness, and what forms of work you’re qualified for.
Once you’re over age 50, Medical Vocational Allowances rely heavily on “grid rules,” which are a series of yes or no questions that help determine if you’ll qualify for disability benefits. Once you’re over age 50, it’ll be much easier to be approved via the grid rules. The SSA is more lenient with how much work you’re able to do while still qualifying for benefits.
Full Retirement Age: Age 6567 Depending On Date Of Birth
Your full retirement age is determined by your day and year of birth, and it is the age in which you get your full amount of Social Security benefits. For every year you delay taking your benefits from full retirement age up until you turn 70, your benefit amount will increase by almost 8% a year. It is referred to as a delayed retirement credit. This increase can result in more lifetime income for you and your spouse. Even after factoring in a potential return on investment and the monthly benefits you could have received if you claimed early, there can still be a $50,000$100,000 increase in lifetime benefits by waiting until you are older.
What Documents Will I Need To Provide
If you were not born in Canada, you must prove your legal status in Canada with your citizenship or immigration documents. If you have not lived continuously in Canada after turning age 18, you must submit proof of all the dates you arrived in or left Canada for periods of over six months. You can do this by providing your passports, visas, airline, ship, and bus tickets, and other documents that prove your residence history in Canada.
When official documents are not available, you may submit other documents such as school and census records, letters from employers, and contracts . Contact us for more examples of acceptable proof.
If you no longer have your original immigration documents, Service Canada may be able to obtain information from Immigration, Refugees and Citizenship Canada on your behalf. To do so, you must complete, sign and return the Consent to Exchange Information with Citizenship and Immigration Canada with your OAS application.
If you have already provided these documents to us, you do not have to provide them again.
The application kit contains more details about these requirements.
Lets Start With A Critical Factor: Your Full Retirement Age
Under the original Social Security Act of 1935, workers had to reach age 65 to receive a full retirement benefit.
This full retirement age was actually simply based on the fact that many state pension systems and the Railroad Retirement Benefit system used age 65, so, the Committee on Economic Security the group that designed the US SS system decided to go with an age that was already commonly used.;
They also considered using age 70, but ultimately decided that age 65 was more reasonable.;Bottom line? Their choice was pretty subjective!
This full retirement age didnt change from the beginnings of Social Security all the way until 1983.
This was the other time in history where, like today, the Social Security trust fund faced a crisis and nearly ran out of money! To keep this from happening, The NATIONAL COMMISSION ON SOCIAL SECURITY REFORM made a series of recommendations to Congress about how to keep the program solvent for the next 50 years.;
Special Rules For Workers Over Age 50 Who Apply For Disability Benefits
According to the Social Security Administration, more than 25 percent of todays 20-year-olds will be put out of work by a disabling condition before reaching the age of 67. A disability becomes more likely as workers age and their bodies become less resistant to injury and illness.
Fortunately, for qualifying disabled workers who have paid enough into the system, compensation may be available in the form of Social Security Disability benefits. As of June, 2013, the Social Security Administration reported that there were 8.9 million disabled workers receiving Social Security Disability at an average monthly benefit of $1,129. While a worker of any age can apply for benefits after suffering a disability, for older workers, special rules may make it easier to obtain Social Security Disability.
When Should I Apply
If you were not selected for automatic enrollment, and if you want to start receiving your OAS pension, you should apply at least six months before your 65th birthday.
If you are already 65 and want to start receiving the OAS pension, send your application as soon as possible so you wont lose any payments.
If you are applying for your OAS pension after you turn 65, and you do not want to delay the receipt of your pension, we will give you a retroactive payment for up to 12 months. You may be eligible for retroactive payments covering a longer period if, due to a medical condition, you can show that you were unable to apply earlier or to ask someone to apply on your behalf. If you are sentenced for two years or more in a federal prison you may still apply for your OAS pension. However, you will not receive pension payments while you are serving your sentence. You must notify Service Canada in writing of your release and your OAS pension payments will begin the month of your release.
For more information, visit Old Age Security.
Inherited Roth Ira Distributions
Dear Liz: You recently answered a question about whether someone should use a Roth IRA to pay off a mortgage. In your answer, you mentioned the requirement to take minimum distributions from the account. One of the huge advantages of a Roth, besides tax-free distributions, is that there are no required minimum withdrawals. Did I miss something?
Answer: You did. You missed the word inherited.
The letter writer was asking whether to use an inherited Roth IRA to pay off the mortgage. Although the original Roth IRA owner was not required to take distributions, the heirs must. Money cant be kept in tax-deferred retirement accounts indefinitely.