Your Monthly Social Security Benefits Grow 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 results in a permanent benefits reduction 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. Or you can keep waiting to claim your Social Security benefits all the way to age 70. There’s a big bonus to delaying your claim — your monthly Social Security benefit will grow by 8% a year until age 70. 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 benefit your heirs as well. By waiting to take his benefit, a high-earning husband, for example, can ensure that his low-earning wife will receive a much higher survivor benefit in the event he dies before her. That extra income of up to 32% could make a big difference for a widow whose household is down to one Social Security benefit.
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.
What About Taxes On Social Security
Keep in mind that Social Security benefits may be taxable, depending on your combined income. Your combined income is equal to your adjusted gross income , plus non-taxable interest payments , plus half of your Social Security benefit.
As your combined income increases above a certain threshold , more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if youre still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
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What Is The Future Of Social Security
If youre skeptical about the future of Social Security or wary of potential changes such as means testingwhich could reduce or eliminate benefits for the wealthy, or an increase in the full retirement ageyou may be tempted to start benefits early, under the assumption that its better to have something than nothing. The 2020 annual report from the Social Security Trustees, released in April, projects that the Social Security Trust Fund has enough resources to cover all promised retirement benefits until 2035, and will cover 79% of scheduled benefits for new retirees thereafter without changing the current system. The 2020 report does not include an adjusted projection due to impacts, if any, from the pandemic.
Over the longer term, changes such as later benefit dates or means testing may be considered.
In any situation, if youre particularly concerned about the future prospects for Social Security, thats a good reason to save more, and earlier, for your retirement.
Why Start Early Or Late
So why start collecting your benefits early or late? Well, if you think you’ll likely live an average-length life , start early. If you just need the money — perhaps because you lost your job or experienced a health crisis before you planned to retire — start early. If you would like to retire early and have managed to save enough to allow you to live off your various income sources and Social Security, start early.
On the other hand, if you think you stand a good chance of living an extra-long life, perhaps because many of your relatives have done so, consider delaying starting to collect if you can. Delaying can also make sense if you’re married, as it can be part of a strategy.
For example, if you and your spouse have had rather different earnings histories, you might start collecting the benefits of the spouse with the lower lifetime earnings record on time or early while delaying starting to collect the benefits of the higher-earning spouse. That way, you’ll get some income earlier, and when the higher earner hits 70, they can collect extra-large checks based on their earnings. Also, should that higher-earning spouse die first, the surviving spouse can collect that bigger benefit.
Will Your Spouse Be Affected
When to begin receiving Social Security is more complicated when you’re married. The age at which you begin receiving benefits may significantly affect the amount of lifetime income you and your spouse receive, as well as the benefit the surviving spouse will be entitled to, so you’ll need to consider how your decision will affect your joint retirement plan.
Theres A Social Security Spousal Benefit
Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s Social Security benefit. Put simply, if your monthly Social Security benefit is worth $2,000 but your spouse’s own benefit is only worth $500, your spouse can collect a spousal benefit worth $1,000 — bringing in $500 more in income per month. Just as the benefit based on your own work history is reduced if you claim it early, the same is true for a spousal benefit. That 50% figure is the maximum amount that only a spouse who is at least full retirement age is eligible for. Taking the spousal benefit early at, say, age 62, reduces the amount to as little as 32.5% of the higher earners benefit. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
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What If I Want To Work In Retirement
Sometimes leaving the workforce is neither feasible nor appealing. Thats why some retirees find part-time jobs to pass the time or earn extra money.
But getting a part-time job after retiring early may reduce your Social Security benefit amount until you reach your full retirement age. The SSA may withhold a certain amount of money from your benefit check if your earnings exceed the annual limit. For 2019, your benefits will be reduced by $1 for every $2 you earn above $17,640. If youll reach your full retirement age in 2019, your benefits will be reduced by $1 for every $3 you earn above a different limit up until the month you turn 67. In 2020, your benefits will be reduced by $1 for every $2 you earn above $18,240. Your benefits will be reduced by $1 for every $3 you earn above $48,600 .
The SSA doesnt penalize working retirees forever. Youll receive all of the benefits the government withheld after you reach your full retirement age and the SSA recalculates your benefit amount.
What To Consider Before Filing For Social Security
A larger benefit check sounds great, but there are tradeoffs, and soon-to-retire folks should consider multiple issues before they decide one way or the other on when to file. If you really want to consider all the avenues, then youll have to think about your finances and longevity two issues that people have a hard time grappling with.
But heres the key tradeoff: you can file early and take a reduced benefit, expecting that a shorter lifespan will mean you receive more now, or you could file at full retirement age or later and claim a bigger check, and eventually live long enough to claim more than the first approach.
Social Security is like longevity insurance, says Brent Neiser, a certified financial planner and former chair of the Consumer Advisory Board at the Consumer Financial Protection Bureau. Its a stream of payments that will not stop throughout your life, so delaying your benefits to keep those payments as large as possible forms a helpful base to your retirement plan.
Neiser urges those who have not saved enough for retirement to use whatever means possible to postpone their Social Security benefits until after their full retirement age to help boost their future income.
You can use personal savings to help bridge the gap, but ideally you should plan to work a little longer , Neiser says.
At What Age Is Social Security No Longer Taxed
At 65 to 67, depending on the year of your birth, you are at full retirement age and can get full Social Security retirement benefits tax-free. However, if youre still working, part of your benefits might be subject to taxation. The IRS adds the figures for your earnings and half your Social Security benefits.
How Early Should You File Before The First Check
When planning your retirement income, the first thing to know about Social Security benefits is that they are paid one month in arrears.
This means if youre eligible for benefits beginning in June, you wont receive your first check until July. The day of the month is dependent on your date of birth:
- If you were born between the first and the 10th, youll receive your check on the second Wednesday of the month.
- If you were born between the 11th and 20th, youll receive your check on the third Wednesday of the month.
- If you were born after the 21st of the month youll receive your check on the fourth Wednesday of the month.
Because you receive your payments one month in arrears and to avoid other snags that could come up file at least 90 days before you want your Social Security checks to start.
Now that you have this information, I hope you wont be surprised like Cheryl. The day before rule on birthdays is strange, but its a rule you need to know to effectively plan your retirement income.
Questions or Comments? If you still have questions, or would like to leave a comment, you could use the comments section below, but what may be a better option is to join my . Its very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time Ill even drop in to add my thoughts, too. Alsoif you havent already, you should join the 100,000+ subscribers on my YouTube channel!
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 1951 and your full retirement age is 66. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by two . This makes your benefit 16% 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 its important to consider your personal circumstancesits not always possible to wait, particularly if you are in poor health or cant 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.
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 .
Your Spouse Is The Higher Earner And Has Health Issues
The first is if your spouse is the higher earner and has health concerns. If your spouse had higher earnings than you, that means their Social Security benefit is going to be higher than yours.
If theyre also in poor health and have a shortened life expectancy, that means the higher benefit they receive will most likely become your benefit when they pass away. That happens though the survivors benefit.
If thats the case, theres not much reason to delay your benefit for years down the road just so you can get a higher benefit for the rest of your life, because youll most likely start getting that survivors benefit at some point in the future.
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What If Social Security Runs Out Of Money
Many folks worry that SS will run out of money, so they feel justified in starting payments as soon as possible:
Personally, I dont expect SS Will Run Out Of Money, but I do suspect there will be tax changes and other adjustments to address the widely touted funding gap. I suspect SS payments will become increasingly means tested, and those who have been responsible and saved a nice nest egg will see their SS payments cut as a result.
No way to know until it happens, but I suspect Ill never see the full payments that I see when I log into my SSA account. In our Retirement Cash Flow projection, I cut our Social Security to 75% of the levels shown in this post. Better to be conservative, in my view.
Should You Take Social Security At Age 62 Or 70
Should you take Social Security At Age 62 or 70? Its a difficult question to answer, but answer it you must. Today, well run you through the numbers. This post will compare, by using our ACTUAL Social Security projections, the impact of taking Social Security at Age 62 vs. Age 70.
Hopefully, this will help you answer the question:
How Much Will You Depend On Social Security
Let’s be clear: Social Security isn’t meant to sustain seniors by itself. Right now, those benefits are designed to replace about 40% of the average earner’s preretirement income, while most seniors need roughly double that amount to live comfortably. Furthermore, the latest Social Security Trustees Report stated that once the program’s trust funds run out, which could happen as soon as 2035, recipients could see up to a 20% reduction in scheduled payments. Therefore, depending on Social Security in the absence of independent savings is a very bad idea.
The fact of the matter, however, is that many seniors do rely on Social Security alone to pay their bills. If you’re behind on savings, and that’s therefore your plan, you probably can’t afford to reduce your benefits in any way. In that case, you should commit your full retirement age to memory, and aim to file for benefits then — not before. If you claim benefits before full retirement age, the lower monthly payment you lock in will remain in effect for the rest of your life unless you manage to undo your benefits application and repay every cent you collected to the Social Security Administration within a year. And chances are that’s not a hit you can afford.
Congress Must Act Sooner Rather Than Later
In theory, the AWI problem could be fixed anytime before 2022, when, for example, workers who turn 60 this year are first eligible to retire at the age of 62. But that delay would cause significant anxiety for these workers, whose future benefits would be at risk. Moreover, people decide when to retire based on projections of their incomes in their initial year of retirement and in the remainder of their lives. It would be most unfair to workers decision-making processes to have the expectations of their future incomes be uncertain for some period of time while they are trying to make such an important decision.
Congress needs to act sooner rather than later to ameliorate this problem. One possibility would be to include a fix in the stimulus legislation to cope with the economic effects of the COVID-19 pandemic that Congress is currently considering.
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Reasons To Take Social Security At Age 62
For most people, the reasons to take Social Security at a later age far outweigh the reasons to take it at 62. There are exceptions, though:
- Your earned income will be below the annual earnings limit, so your benefits won’t be withheld.
- You have health issues and/or a shorter-than-average life expectancy, and, if married, your spouse has a larger benefit than your own.
- You have no other accounts to withdraw from and no way to earn income, so you must take Social Security at 62.
Many people underestimate the true value of their Social Security benefits. By looking at how much you receive over your life expectancy, you’ll be able to make an informed decision about whether to take your benefits at age 62.