Monday, May 16, 2022

Can I Get My Social Security Benefits Early

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Whats Your Social Security Break

What Happens To My Social Security If I Retire Early?

If youre looking to maximize your total lifetime Social Security payout, youll want to conduct a break-even analysis to determine when you should start drawing your benefits.

Your break-even age occurs when the total value of higher benefits starts to exceed the total value of lower benefits .

For example, if you are eligible to collect a reduced $900 benefit at age 62 plus 1 month, and your benefit would increase to $1,251 at age 65 and 10 months, your estimated break-even age is 75 years and 5 months.

If you expect to live beyond that age, it could make financial sense to delay drawing benefits. The Social Security Administrations life expectancy calculator can help you decide.

When it comes to calculating a start date for Social Security benefits, however, theres not an age thats appropriate for everyone. Consider your own financial needs, health and other retirement plans before making the call. If you cant reasonably afford to live without taking benefits, it may make little sense to delay taking your benefit.

A Decade Of Positive Returns Creates Optimism In Investing

Theres nothing like a decade of positive returns in the market to create optimism for investing. Were starting to see this optimism affect how individuals file for social security.

A few years ago, there werent many people saying they were big believers in the market. We were still recovering from the worst market since the Great Depression, and news was still negative.

A few years later, individuals started seeing a few years of positive returns. Some of those have been double digit returns, and optimism began rising.

And so Ive started to hear more people say things like Devin, I think I could file early for Social Security, invest it, and create more income down the road than what I wouldve had with Social Security.

Social Security: Wait Or Take It Early

I got this question recently from a former high school classmate: Should I wait to take Social Security or start at 62?

As with all questions concerning Social Security benefits, the answer is “it depends.”

While you clearly can reap the highest-possible monthly benefit if you wait until 70, you may not be able to if you’re in poor health. My friend falls into the latter category.

Social Security rewards you for delaying your benefits. Your lowest payment will be at 62, when you qualify for “early” payments. Then you get a boost at your “full” retirement age , which, for most people, is 66. Then you max out at 70. Here’s breakdown of how the payments work, according to Fidelity Investments:


— If you claim Social Security at age 62, rather than waiting until your full retirement age , you can expect up to a 30% reduction in monthly benefits.

— For every year you delay past your FRA up to age 70, you get an 8% increase in your benefit. So, if you can afford it, waiting could be the better option.

— Health status, longevity, and retirement lifestyle are three variables that can play a role in your decision on when to claim your Social Security benefits.

Consider Your Health and Longevity

Let’s take the last item and break it down. If you have serious chronic diseases or other life-threatening health conditions, then that’s a good reason to take the early benefit.

Do You Have a Healthy Lifestyle?

Do You Need the Money?

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Report The Death Of A Social Security Or Medicare Beneficiary

You must report the death of a family member receiving Social Security or Medicare benefits. The Social Security Administration processes death reports for both. Find out how you can report a death and how to cancel benefit payments. In addition to canceling SSA and Medicare benefits, find out what other benefits and accounts you should cancel.

What If You Invest It For A Longer Period Of Time Does That Work Out

5 Ways Early Retirement Can Boost Social Security Benefits ...

But what if you have a longer time period?

Lets say that you dont need the income to start until youre 70. In this scenario, youd have from the beginning of age 62 to the beginning of age 70 to receive benefits and invest them. How would the time/value of money change the outcome?

Now we know you may have saved, but how much would it take to replace $1,265?

You need an annuity of $200,000, and an investment portfolio of around $300,000. This means that for the annuity to work youd need to get about a 7% return and for the portfolio to work youd need about a 17% return.

Againthose numbers are just to give you the dollar amount of income that youd get from Social Security without taking hardly any risk. And, the risk is not the only difference here.

For example, the annuity options do not have survivor benefits, the taxation of an annuity vs. investment portfolio vs. social security is all different so the net amount would not be the same. The annuity options were calculated with todays interest rates and theres just no way to know what the interest rates would be in the future and how these annuities would be affected. The investment returns I illustrate are compounded annually and would be slightly different if compounded on a monthly basis. The amount of your social security benefit would also affect the required rate of return on the other options.

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When A Spouse Dies

When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouses benefit. Thats why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, then the surviving, lower-earning spouse will receive a larger Social Security check for life.

When the surviving spouse hasnt reached their FRA, they will be entitled to prorated amounts starting at age 60. Once at their FRA, the surviving spouse is entitled to 100% of the deceased spouses benefit or their own benefit, whichever is higher.

How Does Early Retirement Affect Social Security

Many adults look forward to retirement. And some wouldnt mind leaving the workforce ahead of schedule. But few people think about the drawbacks of retiring early. Few realize that an early retirement might affect their long-term financial plan and their access to certain benefits. A financial advisor can help you figure out all of your retirement and social security issues.

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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.

The Downside Of Claiming Early: Reduced Benefits

Should I take an early withdrawal from my Social Security Benefits?

Consider the following hypothetical example. Colleen is 62 as of 2022. If Colleen waits until age 67 to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, she’ll receive only $1,400 a month. This “early retirement” penalty is permanent and results in her receiving up to 30% less year after year.

However, if Colleen waits until age 70, her monthly benefits will increase another 24% over what she would receive at her FRA, to a total of $2,480 per month.1 If she were to live to age 89, her lifetime benefits would be about $112,000 more, or at least 24% greater, because she waited until age 70 to collect Social Security benefits.2

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How To Calculate Social Security Benefits

Lets say your FRA is 66. If you start claiming benefits at age 66 and your full monthly benefit is $2,000, then youll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, then your benefit will be reduced to 75% of your full monthly benefitalso called your primary insurance amount. In other words, youll get 25% less per month, and your check will be $1,500.

That reduced benefit wont increase once you reach age 66. Rather, youll continue to receive it for the rest of your life. It may go up over time due to cost-of-living adjustments , but only slightly. You can do the math for your own situation using the Social Security Administration Early or Late Retirement Calculator, one of a number of benefit calculators provided by the SSA that can also help you determine your FRA, the SSAs estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, individualized projections of your benefits based on your personal work record, and more.

Gaining Back The Reduction In Benefits From Working

The amounts of early retirement benefits you lose as a setoff against your earnings are not necessarily gone forever. When you reach full retirement age, Social Security will recalculate upward the amount of your benefits to take into account the amounts you lost because of the earned income rule. The lost amounts will be made up only partially, however, a little bit each year. It will take up to 15 years to completely recoup your lost benefits. And remember, none of this readjustment will change the permanent percentage reduction in your benefits that was calculated when you claimed early retirement benefits .

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    Social Security Retirement Age

    Full retirement age is when you first become eligible for full Social Security retirement benefits. If you were born in 1960 or later, your full retirement age is 67. If you were born before that, the age is somewhere between 65 and 66 years and 10 months, depending on your birth year.

    No matter what your full retirement is, you can start collecting benefits as early as age 62 or as late as age 70. Your birth year and your age when you start to collect benefits affect your monthly benefit amount.

    Social Security Benefits by Age and Year of Birth

    Year of Birth


    You can earn delayed retirement credits each month that you wait to collect beyond your full retirement age, up until age 70. This increases your monthly payment by two-thirds of 1% for each month that you waitor 8% a year.

    Even though more money is usually better, that’s not always the case with collecting Social Security benefits. Here are four times when it might be better to forgo the larger check and start collecting benefits sooner.

    You Can Claim Social Security Benefits Earned By Your Ex

    Can I Get Social Security Benefits from My Ex

    Just because you’re divorced doesn’t mean you’ve lost the ability to get a Social Security benefit based on your former spouse’s earnings record. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and single.

    Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still take a benefit on the ex’s record if you have been divorced for at least two years.

    Note: Ex-spouses can also take a survivor benefit if their ex has died after the divorce, and, like any survivor benefit, it will be worth up to 100% of what the ex-spouse received. If you remarry after age 60, you are still eligible for the survivor benefit.

    A claiming strategy if youre divorced: Exes at full retirement age who were born on January 1, 1954, or earlier can apply to restrict their application to a spousal benefit while letting their own benefit grow.

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    Youre Planning Your End

    Your Social Security benefits stop paying at your death, so if you die prior to collecting benefits, you’ll have missed out on benefits entirely. You need to figure out how to maximize your Social Security income, instead. For example, say you’re planning to wait until age 70 so you can claim the larger monthly benefit. If you die right before your 70th birthday, you won’t receive any benefits. It’s very difficult to predict how long you’ll live, especially if you’re in good health now. However, if you are suffering from a terminal or serious illness, the increased monthly benefit for delaying Social Security might not be worth it.

    Can Too Many Early Retirees Affect Social Security

    Regardless of when you retire, youll receive around the same amount of Social Security benefits over the course of your lifetime. This is due to cost-of-living adjustments that attempt to protect seniors from inflation.

    In other words, Social Security balances itself out. Early retirees receive lower monthly benefits over a long period of time while late retirees receive larger benefit amounts over a short period of time. Retiring early does not affect the Social Security programs finances because the amount of benefits available does not depend on how early or late someone retires.

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    Special Rule As You Approach Full Retirement Age

    If you are already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age . If you will reach full retirement age in 2021, you can earn up to $4,210 per month without losing any of your benefits, up until the month you turn 66. But for every $3 you earn over that amount in any month, you will lose $1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.

    If you are self-employed, you may receive full benefits for any month during this first year in which you did not perform what Social Security considers “substantial services.” The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month . In other words, if you work in your business more than 45 hours in a month, Social Security may reduce your benefit.

    Benefits Of Delaying Social Security

    ð´Can I Apply For Social Security Retirement Benefits In Advance of Age 62

    When to start collecting Social Security depends on each retiree’s unique situation. The longer you wait to start collecting, the larger your monthly check will be.

    Also, if you wait until full retirement age to collect, you can earn any amount of money and it won’t reduce your monthly benefits. You can start receiving benefits at 62, even if you’re still working, but here’s the catch. If you start benefits prior to full retirement age, you can only earn up to $18,960 and still get your full benefits. Once you earn more than the limit, Social Security deducts $1 from your benefits for every $2 you earn.

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    How Do Benefits Work And How Can I Qualify

    While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:

    • Those who are currently retired

    • To people with disabilities

    • To the surviving spouses and children of workers who have died

    Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.

    There are four main types of benefits that the SSA offers:

    • Learn about earning limits if you plan to work while receiving Social Security benefits

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