What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit . For example, say you were born in 1955 and your full retirement age is 66 and 2 months. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by approximately two . This makes your benefit ~15% higher than the amount you would have received at age 66.
That higher baseline lasts for the rest of your retirement and serves as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesit’s not always possible to wait, particularly if you are in poor health or can’t afford to delaythe benefits of waiting can be significant.
If you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstancesyour Medicare coverage may be delayed and cost more if you do not sign up at age 65.
Effect of late retirement on benefits
1.Represents Full Retirement Age based on DOB Jan. 2, 1955
2.PIA = The primary insurance amount is the basis for benefits that are paid to an individual
To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70, assuming you continue to work and earn about the same amount until age 62, full retirement age, or age 70 before retiring. If you need a copy of your annual statement, you can request one from the Social Security Administration .
What If I Change My Mind
If you receive Social Security benefits at a reduced rate, but then change your mind, you have the option of withdrawing your application and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. But you are limited to one withdrawal per lifetime.
For example, let’s say you elected to receive early benefits at age 62, but then decided to go back to work at age 63. You could withdraw your Social Security application within the first 12 months of receiving benefits, pay back the years’ worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.
For important details about repaying benefits please read the SSA publication If You Change Your Mind.
Your Monthly Social Security Benefits Increase The Longer You Wait To Claim
You can collect Social Security benefits as soon as you turn 62, but taking benefits before your full retirement age means a permanent reduction in your payments of as much as 25% to 30%, depending on your full retirement age.
If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. But you can also get a big bonus by waiting to claim your Social Security benefits at age 70 your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.
Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.
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Youre Single And Have Health Issues
If youre single and have health issues, you may just want to use a simple break-even analysis. This calculation compares what youll receive in cumulative lifetime benefits for filing at various ages.
For example, if youre trying to compare filing at 62 versus what youd receive if you filed at 67, a break-even analysis would tell you that you need to live longer than age 78 for filing at 67 to make more sense over filing at age 62.
You can run all sorts of age combinations in these calculations, but if youre single and have health issues, this is probably where filing early makes the most sense because youre not worried about increasing survivor benefits or the host of other factors that married individuals have to worry about.
For more information on this specific topic, check out this great article on the break even analysis at dummies.com.
How Much Will Your Retirement Benefit Be
Your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily. Your age at the time you start receiving benefits also affects your benefit amount. Although you can retire early at age 62, the longer you wait to retire , the higher your retirement benefit.
You can find out more about future Social Security benefits by signing up for a my Social Security account at the Social Security website, www.ssa.gov, so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every five years, from age 25 to age 60, and then annually thereafter. You can also use the Retirement Estimator calculator on the Social Security website, as well as other benefit calculators that can help you estimate disability and survivor’s benefits.
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Go Ahead Retire At 62 And Claim Social Security At 67 Your Benefit Will Climb
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Have a question about saving for retirement or your personal financial situation? Whatever the question, Barrons Retirement can try to help. Email , and we might look to financial pros for answers.
Q: Im planning to retire at 62, but I wont collect Social Security until Im 67. Will I still get increased benefits even though I hadnt worked the last five years?
The short answer is yes. Retirees who begin collecting Social Security at 62 instead of at the full retirement age can expect their monthly benefits to be 30% lower. So, delaying claiming until 67 will result in a larger monthly check.
Working until age 67 also could increase your Social Security benefits, especially if you have a high salary or have gaps in your work history. Social Security benefits are calculated using your average indexed monthly earnings during the 35 years in which you earned the most money. Working fewer than 35 years results in a lower monthly benefit because you would have years that count as zero. Once youve hit the 35-year threshold, working until 67 could raise your monthly benefit by increasing the average amount you earned during your 35 best years.
Barrons brings retirement planning and advice to you in a weekly wrap-up of our articles about preparing for life after work.
If youve hit the 35-year threshold, I would say continuing to work has a nominal impact, Shuchman says.
Delaying Retirement Will Increase Your Benefit
For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will increase by a certain percentage. This percentage varies depending on your year of birth. For example, if you were born in 1943 or later, your benefit will increase 8 percent for each year that you delay receiving benefits, up until age 70. In addition, working past your full retirement age has another benefit: It allows you to add years of earnings to your Social Security record. As a result, you may receive a higher benefit when you do retire, especially if your earnings are higher than in previous years.
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Social Security Benefits By Age
I have a decent grasp of how the US social security system works. But I dont have a great understanding of some of the details on how your monthly social security check is calculated.
My parents want to wait until later breakpoints within the social security system to earn the greatest benefits.
For example, at one age, say, 62 they might earn $1,000 per month if they start drawing on it at that age. However, they could opt to wait until a later age. Perhaps they wait until 67 and they earn more monthly benefitsmaybe $1,400/month.
Side note: the average monthly social security benefit for 2020 was $1,543 per retired worker .
But, in my head, this doesnt seem like a great deal on the face of it. Id think that the total social security benefit is largely based on actuarial tables and the time period they can draw the benefit.
Meaning, if you draw $1,000/month from age 62 to death , your total benefit would be similar if you start drawing at age 67 even if its more money per month.
I didnt have much to back up this idea during the conversation with my father aside from a vague sense of how social security works.
How To Plan For Future Benefits
In 2000, the average age at which people retired was roughly 61 or 62. Two decades later, it’s around 66, according to government data, Warshawsky said.
“Just in 20 years, we’ve seen a substantial increase in the retirement age,” Warshawsky said. “People really, really are working longer.”
Anecdotally, Elsasser said he sees more people retiring earlier than they had anticipated as their work prospects change.
That highlights the importance of planning ahead, so you anticipate whatever your retirement years bring. Admittedly, that can be tricky, given that Social Security could be susceptible to change.
If you’re 60 and up, there is less reason to worry any prospective changes would affect your benefits, Elsasser said.
But if you’re 45 to 60 years old, it’s reasonable to plan for benefit reductions of about 5%, he said. For those who are even younger, a 10% to 15% cut is possible.
Moreover, people of all ages should also plan for worst-case scenarios in which the program does reach a point where it can only pay a portion of benefits, which may prompt as much as a 24% benefit cut for retirees.
“The real importance of planning is just making sure you have all your bases covered,” Elsasser said.
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Working May Affect Your Retirement Benefit
You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may affect the amount of benefit that you receive. Here’s how:
- If you’re under full retirement age: $1 in benefits will be deducted for every $2 in earnings you have above the annual limit
- In the year you reach full retirement age: $1 in benefits will be deducted for every $3 you earn over the annual limit until the month you reach full retirement age
Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit. And keep in mind that if some of your benefits are withheld prior to your full retirement age, you’ll generally receive a higher monthly benefit at full retirement age, because after retirement age the SSA recalculates your benefit every year and gives you credit for those withheld earnings
Social Security Retirement Planning
Im writing to you today from my first Amtrak ride since the pandemic started. The train is trundling along, heading north along the eastern coast on its way to the northeastern corner of the US. Were passing through the tiny railroad town of Ashland now.
Im on this ride in order to reach my father who is having knee surgery tomorrow. He needed someone available to cart him back from the hospital. Its also a good excuse to get some father-son time. By the time this is published, the surgery will be complete, and hell be on the road to recovery and a brisk pace once again .
While I was planning the trip with him over the phone last week, he offhandedly mentioned that he and my mother were working through some retirement plans .
As is often the case, I tried to get my bearings for what they were planning to do by asking high-level questions before he got too deep into the weeds.
Theyre both now in their 60s and trying to seriously plan an exit from work and onto retired life. My dad suggested their timeline would be Spring 2023so about two years off.
I asked what their motivation was for that particular time period. While the answer involved multiple concerns, including completing some home improvements in preparation to sell, one key point was related to social security.
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You’re Not Super Confident In Your Health
Social Security is actually designed to pay you the same total lifetime benefit regardless of when you file. The logic is that signing up early will give you smaller payments each month, but more months of payments, while signing up later will do the opposite.
This assumption only works, however, if you live an average lifespan. And so if health issues arise as retirement nears, it could pay to claim benefits as soon as you can if you’re worried you won’t live a long or even average lifespan. Doing so could make it so you’re able to get more money out of Social Security in your lifetime, which should ultimately be your goal.
Can You Still Work While Receiving Social Security
You can continue to work while you receive Social Security benefits. But there is a limit to how much you can earn and still receive full benefits. The earning limit may be adjusted each year.
If you earn above the limit, Social Security will deduct a certain amount of your benefits each year.
Social Security Benefits, Earning Limits and Penalties
|SSA deducts $1 from your benefits for every $3 you earn above the limit|
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Early Benefits Can Still Pay Off
However, taking early benefits can still pay off despite the reduced monthly check. But youll want to be sure you budget for a reduced benefit.
No one can predict how long youll live, but if youre facing a potentially significant reduction in life expectancy and are short of income, taking Social Security early may be appropriate, Neiser says.
Married women are also good candidates for claiming early benefits because they are likely to outlive their husbands. Those widows then become eligible to receive the greater of either their benefit or their late husbands benefit.
However, this scenario works only if the husband does not claim his benefits early. By not claiming early benefits, the husband effectively increases the monthly benefit his wife eventually receives. So youll want to calculate how filing early will affect your spousal benefit here.
Taking Social Security: How To Benefit By Waiting
For those who are able to do so, it may make sense to wait even longer, because youll receive a larger monthly benefit even more than your full benefit. Every month past your full retirement that you delay, Social Security will increase your check by about 0.7 percent per month.
If your full retirement age is 66, then heres how much your check would increase:
|Retirement age||New benefit||A $1,000 check becomes|
So if your full retirement age is 66, then if you can wait two more years and claim benefits at age 68, youll increase your monthly check by 16 percent. In this case, if your full benefit were $1,000 a month, your new benefit would become $1,160 per month. And youll still receive cost of living adjustments on top of this amount, typically raising your payout a little each year.
Workers have other ways to grow their Social Security benefits, too, but its important to start early.
Claiming At 62 Could Potentially Open The Door To Retiring Earlier
If you’ve been hoping to retire at a young age and enjoy life, you may need Social Security checks in order to make that happen. It’s hard to amass a large enough investment account to fully support yourself without Social Security benefits, especially if you’re planning on leaving the workforce sooner than most people do since you’ll have less time to save.
If your nest egg can’t support you by itself but you’re ready to quit work, you may decide that filing for Social Security at 62 is worth it to supplement your savings and allow you to retire — even if this does mean you do get a smaller benefit for life.
You’ve Saved So Much Your Benefits Are Really Just Bonus Cash
If you’re coming into retirement with $90,000 in your IRA or 401 plan, then let’s face — you’re going to need all the money you can get out of Social Security to cover your senior living costs. But if you’re entering retirement with a $4 million nest egg, then it probably doesn’t matter whether you collect $1,200 a month from Social Security, $2,000 a month, or somewhere in between.
In that scenario, chances are, the overwhelming bulk of your senior income will be coming in the form of IRA or 401 withdrawals. And so if you have the desire to claim Social Security early and use that money for things like vacations and leisure purchases, why not do it?
Though claiming Social Security at age 62 will leave you with less money every month — for life — it’s not necessarily a bad idea. Quite the contrary — it could end up being one of the smartest moves you’ll make for your retirement.
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