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.
Work For At Least 35 Years
The Social Security Administration uses your 35 highest-earning years to calculate your primary insurance amount , which is the monthly benefit amount you receive as of your full retirement age. If youve worked fewer than 35 years, Social Security uses zeroes in the calculation for the non-earning years.
That means beneficiaries with fewer than 35 years of income can make a big difference in the size of their benefit by continuing to work and getting some of the zeroes replaced with positive income numbers.
Brotman also suggests strategically increasing your yearly income, if possible, to help maximize your future benefits.
The first $142,800 of income is subject to Social Security taxation and also used to calculate future benefits, he notes. If you are earning less than that figure, consider a second job or side hustle to increase your contributions into the system and youll be setting yourself up for a larger future benefit.
Pension Benefits Can Lower Earnings
Some pension plans offer a larger initial monthly benefit when you take early retirement the pension benefit then automatically goes down when you become eligible to draw on Social Security. If you are not aware of this, you may think you will get your full pension benefit plus Social Security.
Not all pensions work this way, so attend all classes or seminars offered by your employer to make sure you fully understand your pension and health benefits prior to taking early retirement. Ask plenty of questions, and set up a one-on-one appointment with a benefits advisor or HR person if you can.
In addition, if you worked in education or for the state or a government entity, be aware when you do begin your Social Security benefits that they may be less than what your statement shows due to something called the Windfall Elimination Provision and/or the Government Pension Offset.
For example, suppose your neighbor Lois worked as a teacher for 43 years, and in retirement she expects to get her pension plus $1,300 a month in Social Security. She will be shocked when she learns her Social Security will be less than $300 a month due to the government pension offset that applies if you get a pension for years of work where you were not covered under the Social Security system.
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Spouses And Social Security
You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is up to 35% while the reduction for claiming your own benefit is up to 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.
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Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be up to 30% less for the remainder of their lifetime.
A Guide On Taking Social Security
The decision of when to take Social Security is highly dependent on your circumstances. You can start taking it as early as age 62 , wait until you’ve reached full retirement age or even until age 70. While there’s no “correct” claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement. Here are some of the rules and guidelines.
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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.
Drawbacks To Applying For Ssdi And Retirement
This can backfire on some people, however. If you apply for early retirement but do not receive approval for your SSDI claim, you may be stuck drawing a smaller amount of retirement for the rest of your life. If this happened to you, we may be able to help you in appealing the SSDI denial. You have only 60 days to file this appeal after receiving a notice about the SSAs decision, however, so contact us as soon as possible after you receive a denial.
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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.
Theres A Social Security Spousal Benefit
Marriage brings couples an advantage when it comes to Social Security. One spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s Social Security benefit. For example, 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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If You’re Not Sure Why You Received A Payment
If you receive a check or direct deposit payment from the Treasury Department and do not know what its for, contact the regional financial center that issued it.
If you received a check, look for the RFCs city and state at the top center. Then contact that RFC to find out which federal agency authorized the payment. It will be one of these:
If you received payment byelectronic funds transfer , or direct deposit, follow the directions under Find Information About a Payment.
Use the Treasury Check Verification System to verify that the check is legitimate and issued by the government.
When Can I File For Social Security
This is, understandably, one of the first major questions that people have about Social Security.
Widows and widowers are able to draw Social Security at the age of 60 otherwise, under normal circumstances, the earliest age you could draw from it is 62. However, if you file at 62 and have not yet reached your FRA, or Full Retirement Age , then your full benefit may be reduced by up to 30% .
Once you do reach your Full Retirement Age, youll be eligible to receive your full Social Security Benefits: this is usually between the ages of 65 and 67 for most federal employees. For example, if you were born between 1943 and 1954, your Full Retirement Age is 66. If you were born after 1960, your FRA is 67.
The latest time that you can get your largest earnings from Social Security is the age of 70.
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When It May Be Best To File For Social Security Early
Disability Associates – July 14, 2015
To file for Social Security early means accepting a reduction in the monthly benefit received. However, signing up early may be the best option.
Social Security is a great resource when it comes time to retire. Though in order to receive full benefits, seniors must wait until they reach full retirement agebetween 65 and 67 years of age depending on the year of birth. The government allows early registration after a person reaches the age of 62, but at the cost of a reduction in monthly payments.
Social Security benefits are reduced by up to 8 percent for each year you file early. So, if a seniors full retirement age is 66 and they file for benefits at 62, they will face a 32 percent reduction in pay each month. Though there are circumstances in which filing for Social Security early is the best option. The experienced attorneys at Disability Associates, LLC provide explanation for those particular situations.
Timing And Your Health Coverage
Your health insurance coverage can also play a role in deciding when to claim Social Security benefits. Do you have a health savings account to which you would like to keep contributing? If so, note that if youre age 65 or older, then receiving Social Security benefits requires you to sign up for Medicare Part A, and once you sign up for Medicare Part A, youll no longer be allowed to add funds to your HSA.
The SSA also cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D.
In 2022, the average monthly premium for Part D will be $33 per month versus $31.47 in 2021. If you enroll in a Medicare Advantage plan, the average monthly premium will be $19 per month in 2022 versus $21.22 in 2021. However, if you are still receiving health insurance from your or your spouses employer, you might not yet have to enroll in Medicare.
As of Oct. 16, 2021, Social Security offices are only open by appointment, and to get an appointment you need to be in a limited, critical situation. Most people will have to transact their business online, by phone, or through the mail.
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Collecting Social Security Before Or After Your Full Retirement Age
If you begin collecting Social Security at age 62 and your full retirement age is 66, the check you receive will be about one-quarter less than the amount you would have received at full retirement age. If you are the sole breadwinner in your household, your spouse could be negatively affected as well. If you begin collecting before your full retirement age, the amount of money your spouse would receive after your death decreases.
Supplementing Your Social Security Income
For many retirees, the income they receive from Social Security is not enough to live off of: According to AARP, the estimated average Social Security monthly benefit in 2022 is $1,657. If you haven’t started saving for retirement it’s essential to start early so you can take advantage of the power of compound interest .
If your company offers an employer-sponsored 401 with matching contributions, you should prioritize receiving the match because it’s essentially free money.
With a traditional IRA, individuals invest pretax income and don’t pay taxes until they withdraw their earnings. With a Roth IRA individuals invest after-tax money so their withdrawals are tax-free. A Roth IRA is considered a good option for those who anticipate being in a higher income tax bracket in retirement: Rather than paying higher taxes later on, you’ll pay taxes on your contributions upfront.
A Roth IRA, however, is not available to everyone. For 2022, the income limit for single-filers is $144,000 and for married couples filing jointly it’s $204,000. Companies like Vanguard, Wealthfront, Betterment, and Fidelity Investments all provide traditional and Roth IRA options.
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You Want To Retire Nowor Are Unwillingly Retired
Unless you have other forms of income, filing for Social Security is the only way youll survive without a steady job. If youre laid off or find your job too difficult to maintain, it may be sensible to retire and take your benefits early. Usually, that’s not a good idea, but it can be the only option for those struggling financially at an older age. If you have a choice, try to wait until your full retirement age, usually 66 or 67. Taking it before then will lower your monthly benefit.
Here’s an escape route worth knowing about, just in case: If you are lucky and suddenly secure a job or other income source within a year after you take early retirement, you have the option to pay back the benefits you got from Social Security and refile later when your benefits will be higher. The process is called a withdrawal and you get just one do-over opportunity.
You Cant Work Anymore
Even the best retirement financial plans and projections can go awry. For example, you might have planned on working until youre 70 so you could maximize your retirement benefits. If you get laid off at 62, however, and have difficulty finding another job, you might need to start taking your benefits just to get by.
Additionally, continuing to work in your industry simply might not be possible or healthy for you later in life. If your job requires manual labor, you might decide the risk of injury or other damage to your health isnt worth continuing to work. In this case, the healthier lifestyle youll get by retiring early could outweigh the smaller monthly Social Security benefit.
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Social Security: How Far In Advance Can I Apply
The rule of thumb is the earlier you decide to take distributions, the smaller your monthly check will be if you waited until full retirement age or the maximum age of 70 to take advantage of benefits.
According to the Social Security Administration, the earliest you can be eligible to receive benefits is 62 years of age but you must be 62 for the entire month. This means if you turn 62 on the 28th of the month, you must wait until the next month to claim benefits for the first time.
If you were born on the first or second day of the month, you meet this requirement at the moment of your 62nd birthday. If you were born on any other day of the month, you do not meet this requirement until the following month.
The SSA states you can apply up to four months before you want your retirement benefits to start. This is the earliest you can apply for social security benefits to make sure your benefits begin to distribute as soon as you reach 62. For example, if you turn 62 on Dec. 2, you can start your benefits as early as December and begin the application process in August.
According to the administration, even if you are not ready to retire you should still sign up for Medicare three months before your 65th birthday.
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