You Want To Start A Business
Some people think of retirement as a time to relax, but you might see it as an opportunity to do things you couldnt do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldnt be generating enough income. Social Security benefits could provide enough income to let you launch your business. And if your business is successful, the income it generates could be more than enough to offset the future reduction in benefits.
At Her Full Retirement Age
Sheâs eligible for a portion of your benefit prior to her full retirement age. According to SSA.gov, if the spouse begins receiving benefits before their ânormal retirement ageâ the spouse will receive a reduced benefit. However, if your spouse is caring for a qualifying child, the spousal benefit is not reduced.
What Happens If You Claim After Your Fra
If you wait until your age 70 to start claiming benefits, then youll get an extra 8% per yearor, in total, 132% of your primary insurance amount for the rest of your life. Claiming after you turn 70 doesnt increase your benefits further, so theres no reason to wait longer than that.
The longer you can afford to wait after age 62 , the larger your monthly benefit will be. Nevertheless, delaying benefits doesnt necessarily mean that youll come out ahead overall. Other factors should be considered, including your expected longevity and whether you plan to file for spousal benefits. You should also consider the tax, investment opportunity, and health coverage implications.
Beware The Social Security Earnings Test
Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test for annual income, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2021 is $18,960. Once you are past full retirement age, the earnings test no longer applies, and you can make as much money as you want with no impact on benefits.
Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full years worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.
Why Waiting May Make Sense
Waiting until your FRA to apply for Social Security can increase the amount you receive in benefits each month. You will receive an 8% increase in your benefit payment for every year you delay receiving benefits. If you can put off receiving Social Security payments until age 70, that could add up to an almost 25% increase in the amount you receive each month.
Take some time to consider whether applying for Social Security benefits to begin at age 62 or at any age after that best helps you fund your retirement in the most practical way. The Social Security Administration can provide you with financial figures that will assist you in your decision-making process. Taking a hard look at the financial implications of retiring at various ages and at your personal situation will allow you to enjoy greater financial flexibility during your retirement years.
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How Do I Know When I’m Eligible For Social Security
To be eligible for Social Security retirement benefits you must generally be at least age 62 and have earned at least 40 Social Security credits. Typically that means you’ve worked and paid into the system for at least 10 years. Spouses can also be eligible for benefits based on their spouse’s work record.
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 you’re 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.
Why You Might Want To
Since few of us have much of an idea of how long we’ll live, it’s well worth considering retiring early if you can in order to enjoy as many work-free years as possible. Many people don’t even really get to decide just when to retire — fate decides for them. The 2017 Retirement Confidence Survey found that 48% of retirees left the workforce earlier than planned, with 41% citing health problems or a disability as the reason and 26% citing changes at work such as a downsizing or workplace closure.
Better still, the younger you are when you retire, the more active you can be in retirement, at least in the first bunch of years. If you want to play a lot of tennis or want to take up ballroom dancing lessons or plant a big garden or trek up to Machu Picchu, it will be much easier to do when you’re 65 than when you’re 75. Early retirees often can enjoy their retirement more, being younger, healthier, and more able to be active, travel, and so on.
Don’t jump into an early retirement without being sure you can afford it — and don’t forget to factor in healthcare costs, either, as they can be hefty. But if you can swing it, give early retirement some serious consideration. Social Security lets you start collecting monthly checks at age 62, and that’s just what you might want to do.
You Can Turn That Money Into An Ongoing Income Stream
Some people file for Social Security early with the intent to invest that money in stocks and grow it into a larger sum. That’s a somewhat risky prospect, though, because you’ll need to generate a high enough return to outweigh the hit you’ll take for claiming benefits early.
On the other hand, if you file for Social Security at 62 and use your benefits as seed money to start a business, you might generate more than enough revenue to compensate for a lower benefit. This especially holds true if you’ve mapped out a business plan and have savvy management skills.
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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 .
The Basics Of Social Security
First off, every eligible worker can begin receiving Social Security benefits at age 62, but you’ll get a reduced monthly payment if you don’t wait until you’re at full retirement age. Your monthly payment will depend a few things, including your income throughout your working years, how much you paid into the Social Security system and at what age you claim benefits. Benefits are adjusted yearly based on the cost of living.
Full retirement age depends on the year you were born:
- If you were born between 1943 and 1954, full retirement age is 66
- If you were born between 1955 and 1959, full retirement age is between 66 and 67, depending on your birth year
- If you were born after 1960, full retirement age is 67
The Social Security website provides a calculator to help individuals understand how much their benefit will be reduced if they collect early. For example, if you were born in 1960 and wanted to collect as soon as you hit age 62, you’d receive 70% of your full retirement age payout. But if you waited until age 64 you’d get 80% of the full benefit.
By delaying the receipt of your benefits past full retirement age, you’ll earn even more than the full benefit for every year after full retirement age and before you hit age 70, you’ll collect 8% more each year.
- If you’re full retirement age is 66, you can earn up to 132% of your full benefit by waiting until you’re 70
- If you’re full retirement age is 67, you can earn up to 124% of your full benefit by waiting until you’re 70
Taking Social Security As Soon As You’re Eligible Is Tempting But There’s A Trade
There are costs associated with the rules of the program and other factors to consider, so its important to understand fully the effect your decision will have on your overall retirement income.
If you can afford it, waiting is often the better option. Ideally, you want to evaluate your decision on when to take Social Security based on how much you’ve saved for retirement and your other sources of income.
While most people would benefit from waiting until, say, age 67 to take payments, others could risk running out of money too soon and might have fewer options.
It pays to wait.
Youre eligible to take Social Security benefits at age 62, but your benefit will continue to increase until you reach age 70. Waiting can make all the difference.
Take Social Security at 62$1,200
How To Apply For Social Security Benefits At Age 62
- If you are planning to retire at age 62, Social Security benefits can help to fund this dream. Here are some facts about early applications for Social Security.
Early retirement is a dream for many people. Social Security benefits can be an important way of achieving that dream. Understanding the application process and the consequences of early retirement on your Social Security benefits can help you make the most practical decisions about this source of income in retirement.
Social Security Disability Programs
In addition to retirement benefits, the Social Security Administration manages two programs that provide benefits to people who are disabled or blind.
- Social Security Disability Insurance Program
- SSDI supports disabled or blind individuals by providing benefits based on their workers contributions to the Social Security trust fund. Your contributions are based on your earnings or your spouses or parents earnings while in the workforce. Your dependents may also be eligible for SSDI benefits based on your earnings.
- Supplemental Security Income Program
- SSI benefits are paid out as cash assistance to people with limited incomes and resources who are elderly, blind or disabled. These benefits may also include blind or disabled children. SSI payments are a federal benefit funded by the general fund of the United States not the Social Security trust fund. Some states provide additional state supplemental benefits in addition to the federal SSI payments.
In some cases, people may be eligible for both SSI and SSDI at the same time. The Social Security Administration calls these concurrent benefits. This can happen when a disability qualifies you for Social Security Disability Benefits, but you only get a small amount of monthly SSDI benefits. This may qualify you to receive SSI benefits as well.
Comparing SSDI and SSI Programs
|Up to 85%|
Income Taxes for Other Benefit Programs
Disadvantages Of Taking Social Security At 62
Of course, there are plenty of cons as weve discussed.
- More active approach, requiring more effort and interest in maintaining investments and managing withdrawals
- Assets are at greater riskinvested cash could follow the market down in a recession or depression even when invested conservatively
- Loss of the security the SSA offers when managing the funds
- Potential tax consequences of investment gains
- Potential social program qualification loss due to investment gains/income
- Greater annual benefit amounts could push recipients into higher income tax brackets, out of social security income specific deduction thresholds, or out of certain social programs that have income requirements
And these are just some of the retiring at 62 pros and cons weve worked through in this post.
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Should She Claim Half Of Your Social Security Benefit Asap
If she was entitled to a full half of your benefit, then it would be a lot more than what she is getting now, though slightly less than what she would get if she waited until sheâs 70. It would make sense for her to claim Social Security as soon as she can. But, in fact, sheâs getting just 67.39% of your benefit. Hereâs how that math works:
No More File And Suspend
Note that the claiming strategy called file and suspend, which allowed married couples who have reached their FRA to receive spousal benefits and delayed retirement credits at the same time, ended as of May 1, 2016. However, spouses born before Jan. 2, 1954, who have attained their FRA may still be able to file a restricted application. It allows them to claim spousal benefits while delaying their own benefits up to age 70.
Social Security benefits can be taxable if your combined income is high enough.
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How Much Can You Earn In 2020 And Draw Social Security At 62
In 2020, the yearly limit is $18,240. During the year in which you reach full retirement age, the SSA will deduct $1 for every $3 you earn above the annual limit. For 2020, the limit is $48,600. The good news is only the earnings before the month in which you reach your full retirement age will be counted.
Is There A Maximum Benefit
Yes, there is a limit to how much you can receive in Social Security benefits. The maximum Social Security benefit changes each year. For 2021, itâs $3,895/month for those who retire at age 70 . Multiply that by 12 to get $46,740 in maximum annual benefits. If that’s less than your anticipated annual expenses, youâll need to have additional income from your own savings to supplement it.
How Your Social Security Benefits Are Calculated
Your Social Security benefits are based on the 35 calendar years in which your income was the highest. If you have fewer than 35 years of earnings, each year with no earnings will be entered as zero. You can increase your Social Security benefit at any time by replacing a zero or low-income year with a higher-income year.
There is a maximum Social Security benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2021, the maximum monthly benefit is $3,113. For someone filing at age 70, the maximum monthly amount is $3,895.
Know Your Social Security Full Retirement Age
First things first:Determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. If your birthday falls between 1955 and 1959, it gradually climbs to 67. If you are born in 1960 or later, your full retirement age is 67.
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. More on that in a moment.
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You Can Receive Benefits Before Your Full Retirement Age
You can start receiving your Social Security retirement benefits as early as age 62, but the benefit amount will be lower than your full retirement benefit amount.
If you start receiving your benefits before your full retirement age, we will reduce your benefits based on the number of months you receive benefits before you reach your full retirement age.
If you wait until age 70 to start your benefits, your benefit amount will be higher because you will receive delayed retirement credits for each month you delay filing for benefits. There is no additional benefit increase after you reach age 70, even if you continue to delay starting benefits.