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.
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 .
Change In How You Report Earnings
The Social Security Administration bases its benefit calculations on earnings reported on W-2 forms and on self-employment tax payments. Most individuals are not required to send in an estimate of earnings.
However, the Social Security Administration does request earnings estimates from some recipients: those with substantial self-employment income or those whose reported earnings have varied widely from month to month, including people who work on commission. Toward the end of each year, Social Security sends those people a form asking for an earnings estimate for the following year. The agency uses the information to calculate benefits for the first months of the following year. It will then adjust the amounts, if necessary, after it receives actual W-2 or self-employment tax information in the current year.
Once a beneficiary reaches full retirement age, his or her income will no longer be checked. Because there is no Social Security limit on how much a person can earn after reaching full retirement age, there is nothing to report.
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How To Determine If Social Security Benefits Are Taxable
Seniors whose only source of income is Social Security do not have to pay federal income taxes on their benefits. If they receive other sources of income, including tax-exempt interest;income, they must add one-half of their annual Social Security benefits to their other income and then compare the result to a threshold set by the IRS. If the total is more than the IRS threshold, some of their Social Security benefits are taxable.
For 2020, the threshold amount is $25,000 for singles and $32,000 for married couples filing jointly. Married couples who live together but file separately have a threshold of $0 and must pay taxes on Social Security benefits regardless of other income earned.
The formula for calculating your combined income includes adding your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. Your other income, which is included in adjusted gross income, can come from a part-time job or 401 withdrawals.;
More specifically, Social Security benefits are taxed as follows:;
- Up to 50% of Social Security benefits are taxed on income from $25,000 to $34,000 for individuals or $32,000 to $44,000 for married couples filing jointly.;
- Up to 85% of benefits are taxable if the income level is over $34,000 for individuals or $44,000 for couples.;
How Much Can I Earn If I Retire At 62 In 2021
Social Security beneficiaries who continue to work will be able to earn $720 more in 2021 before part of their Social Security benefit is temporarily withheld. Social Security recipients age 65 and younger can earn up to $18,960 in 2021 before a benefit dollar is withheld for every $2 earned above the limit.
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Whats Your Social Security Break
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.
How Much Money Can I Make When I Retire At 62
If you start benefits between the month you turn 62 and the month you reach full retirement age, the Social Security Administration will deduct one dollar from your annual benefit amount for every two dollars you make above an annual limit. As of 2019, this limit is $17,640 per year or $1,470 a month.
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What Do You Value Most
The opportunity to experience freedom and live life on your own terms, or a higher check from Social Security?
Perhaps Im too idealistic but live in the now. Dont put off the activities that youve been dreaming of accomplishing in retirement.
Dont waste what may be your best years because you think the Social Security Administration rewards you with a higher monthly check for waiting longer.
Although I sincerely wish you a long and healthy life, applying for benefits later may be too late. You could wind up with nothing.
Taxes On Your Benefits
Your Social Security benefits may be partially taxable if your combined income exceeds certain thresholds. Regardless of how much you make, the first 15% of your benefits are not taxed.
The SSA defines combined income using this formula:
- Your adjusted gross income + nontaxable interest + half of your Social Security benefits = your combined income
If you file your federal tax return as an individual and your combined income is $25,000 to $34,000, then you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, then you may have to pay tax on up to 85% of your benefits.
If youre married, filing a joint return, and your combined income is $32,000 to $44,000, then you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, then you may have to pay tax on up to 85% of your benefits.
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Waiting Until Later Is Ideal But Life Can Get In The Way
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Its best to wait until youre 70 to start taking Social Security retirement benefits even if it means tapping into your retirement assets at the bottom of a bear market. Why? Because the guaranteed, risk-free 8% annual Social Security benefit increase is an unbeatable deal.
And yet in 2018 only 6% of women and 4% of men waited until they turned 70 to claim benefits. Most advisers and financial columnists wag their fingers at people who take Social Security as soon as they qualify at age 62. Yet some 31% of women and 27% of men tapped into Social Security at that age in 2018. Its hard to say no when somebody is offering you a pot of money right now.
There are some bad reasons to do this, such as because all your friends are doing it or because youd better grab the benefits before Social Security runs out of money. I suspect that before that happened, Congress would raise payroll taxes for high-income people rather than cut benefits for one of the nations largest, most active voting blocs.
But there are some decent reasons to start taking benefits early, and the recession in the wake of the COVID19 pandemic has dramatically highlighted one of them: many people dont have much choice. Well get into that later.
Sometimes you just gotta do what you gotta do.
What Month Can You Start Collecting Social Security
You can start collecting Social Security in the first full month in which you are 62. That means, if your birthday is on the 15th, you won’t be able to start collecting benefits until the month after you turn 62. If you were born on the first or second day of the month, you can start collecting benefits that month.
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Retiring At 70 Heres The Maximum You Can Collect In Social Security Income
Theres no perfect age to begin collecting Social Security, but many people are waiting until age 70 because of benefit-boosting, delayed retirement credits. If youre filing for Social Security at age 70 this year, then those credits are going to result in a monthly Social Security payment thats a lot bigger than if you filed when you were younger.
How much bigger? The maximum Social Security benefit at age 62 is $2,324 in 2021 but swells to $3,895 per month if youre retiring at age 70 this year. Thats 67.5% more in monthly retirement income.
Granted, not many people qualify for the maximum Social Security amount. Social Security benefits are based on pre-retirement income, and qualifying for the biggest payment requires a 35-year track record of income above the annual payroll tax limit, which is $142,800 in 2021. Nevertheless, delayed retirement credits increase benefits by a fixed percentage for each month you delay, so youll still pocket considerably more income by delaying than you will if you claim early.
If Youre Married Compute Your Combined Benefit
This is where Social Security gets really tricky. As an individual, you try to maximize your lifetime benefit. But as a couple, your goal is to maximize your combined benefit over both of your lifetimes as well as survivor benefits. This involves analyzing your personal benefits as well as the potential to take advantage of spousal benefits.
Do The Math Collecting Later Will Cost You
In 2019, the average Social Security check at full retirement is approximately $1,500 per month.
If you decide to take that money at 62 you would receive approximately 70% of that amount, which is $1,050.
Over a period of 12 months, that comes to $12,600. Multiply that times 4 years and you get $50,400 in Social Security benefits before age 66.
If you wait and apply later, that is cash you give up at a time in your life when you may be able to put it to its best use. Examples of why a person would claim benefits at 62 include investment opportunities, unemployment, disability, illness, etc.
To be fair, lets look at it from the other perspective.
A 30% reduction in your check amount is what Social Security estimates you will receive if you file at 62.
Using that $1,500 average figure again 30% of that comes to $450 per month.
Again, multiply that by 12 and you get $5,400.
Admittedly, thats a decent amount of money you forfeit by collecting at 62.
However, you would have missed out on 48 payments, plus you would have had to contribute to Social Security for 4 years! It would take you at least until you were 76, or perhaps into your 80s before you would break even.
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.
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Do Social Security Disability Benefits Change At Age 62
To learn how age impacts Social Security disability benefits, it helps to understand the eligibility criteria and the programs available.
How The Social Security Administration Defines Disability
When the SSA reviews your claim for disability benefits, the key factor is whether or not you are able to work to support yourself and provide for your family. This is the basis for how the SSA defines total disability, which is the only type of disability allowed under the program. Neither partial nor short-term disability meet the criteria. The SSA expects that people will be prepared for such emergencies through short-term disability insurance, workers compensation or personal savings. The determination of total disability hinges on whether or not you can perform the same work as before, if the work can be adjusted to accommodate the condition, and the projected duration of the disability.
SSI vs. SSDI
There are two types of disability programs administered by the SSA: Social Security Disability Insurance program and Supplemental Security Income program. To be eligible for SSDI, the applicant needs to have worked and earned enough credits to qualify for disability benefits. Credits are earned by working and paying Social Security taxes. This is different than SSI, a program where the applicant must demonstrate a financial need in addition to meeting the disability criteria. Those below age 19 would apply for SSI because children would not have yet accrued credits for working.
How Day Of Birth Affects Benefit Reduction
Calculating how much your benefit will be reduced for early filing can also get a little tricky when trying to file as soon as you turn 62.
Those born after the second day of the month wont be eligible for benefits until the following month, but the SSA still views your age as 62 and 1 month thus slightly increasing your benefit payment. Those born on the second day of the month are eligible in that month for an unreduced benefit.
The weird part of the rule is for those who are born on the first of the month. Theyre deemed to have turned 62 on the last day of the prior month. Therefore, the Social Security Administration actually counts those people as 62 and 1 month in the month they attain age 62.
Heres an example of three individuals to help make sense of these weird rules around and definitions of birthdays:
Joe was born on June 1. Dan was born on June 2. Tom was born on June 3 They all had identical earnings and each has the same full retirement age benefit.
With that full retirement age benefit being $2,000, heres when they would be eligible for their ;age 62 benefit and how it would be calculated.
Joe, who was born on June 1, has an effective birthday of May 31. He would be entitled to benefits in June because of the rule that pushes his birthday to the previous month. The benefit would also be equal to the amount he could receive if he filed at 62 and 1 month.
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.