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How Early Can You Take Social Security

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What To Do: Budget For Early Retirement

Why YOU Should Take Social Security Early!

If you rely on early Social Security benefits to supplement your working income in the years before you reach full retirement age, make sure you account for the rules for working while earning Social Security. It’s important to be aware of the potential reduction in your benefits.

Once you reach full retirement age, there’s no further reduction. Your benefit amount will be recalculated at this time to leave out the months when benefits were reduced or withheld due to excess earnings. Without proper planning, however, you could face short-term cash-flow problems.

How Should I Decide When To Take Benefits

Consider the following factors as you decide when to take Social Security.

Your cash needs: If youre contemplating early retirement and you have sufficient resources , you can be flexible about when to take Social Security benefits.

If youll need your Social Security benefits to make ends meet, you may have fewer options. If possible, you may want to consider postponing retirement or work part-time until you reach your full retirement ageor even longer so that you can maximize your benefits.

Your life expectancy and break-even age: Taking Social Security early reduces your benefits, but youll also receive monthly checks for a longer period of time. On the other hand, taking Social Security later results in fewer checks during your lifetime, but the credit for waiting means each check will be larger.

At what age will you break even and begin to come out ahead if you delay Social Security? The break-even age depends on the amount of your benefits and the assumptions you use to account for taxes and the opportunity cost of waiting . The SSA has several handy calculators you can use to estimate your own benefits.

If you think youll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if youre in poor health or have reason to believe you wont beat the average life expectancy, you might decide to take what you can while you can.

A quick note about life expectancy

Claiming Social Security After Your Full Retirement Age Increases Benefits

You can also wait as late as age 70 to start collecting Social Security benefits. Doing so boosts your retirement benefits. Theres no incentive to wait after age 70 to claim Social Security.

Heres how your benefit will increase if you wait to claim Social Security:

  • If you delay claiming until age 68, your benefit will increase by 8%
  • If you delay claiming until age 69, your benefit will increase by 16%
  • If you delay claiming Social Security until age 70, your benefit will increase by 24%

Using this example, if you were eligible for a Social Security retirement benefit of $1,000 per month at your full retirement age of 67, the benefit would increase to $1,080 if you delay claiming until age 68 $1,160 if you delay to age 69 and $1,240 if you delay to age 70.

Once again, the delayed retirement credits accrue monthly, not annually, so every month you wait beyond age 67 will net you a slightly bigger monthly check from Social Security.

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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

If You Were Born In 1960 Your Full Retirement Age Is 67

Social Security: 4 Good Reasons To File Early

You can start your Social Security retirement benefits as early as age 62, but the benefit amount you receive will be less than your full retirement benefit amount.

The chart below provides examples of the percentage of your full retirement benefit amount you and your spouse would receive from age 62 up to your full retirement age.

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Are Your Social Security Benefits Taxed If You’re Still Working

If you have earnings from working or you have other taxable income, such as distributions from a retirement plan, part of your Social Security may be taxed.

Whether you’re still employed or you’re a retiree, you’ll pay taxes on up to 85% of your Social Security benefit if:

  • You’re single with a taxable income of $34,000 or higher.
  • You’re married filing jointly with a combined taxable income of $44,000 or higher.

You’ll pay taxes on up to 50% of your Social Security benefit if:

  • You’re single with a taxable income between $25,000 and $34,000.
  • You’re married filing jointly with a combined income between $32,000 and $44,000.

If your income is below these limits, you won’t owe taxes on your Social Security.

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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    What If I Don’t Have Either Of These Options

    Unfortunately, a lot of people won’t qualify for either of these options. If your Social Security and savings aren’t enough, consider the following solutions:

    • Working longer or taking a part-time job: Once you reach full retirement age, your earnings won’t affect your Social Security benefits. But be aware that if you’re working and collecting Social Security benefits early, for every $2 you earn above $18,240, your benefits will be reduced by $1 in 2020. The limit goes up to $48,600 during the year you reach FRA, with $1 withheld for every $3 you earn above that, but once you actually hit FRA, no earnings limit applies. For every month’s worth of benefits you lose, though, you get treated as though you claimed your Social Security a month later than you actually did.
    • Getting a reverse mortgage: If you own a home with significant equity and need income, a reverse mortgage is worth considering, so long as you’re fine with your home being sold to pay off your mortgage when you die.

    If you haven’t decided when to take Social Security yet, keep in mind that your options for reversing that decision are extremely limited. Holding off on taking benefits if you can is the best strategy when you’re worried you won’t have enough money when you retire.

    Broader Costs To Your Retirement Savings

    When You SHOULD Take Social Security Early and Invest

    It’s natural to want to retire as soon as you can, but it’s crucial to consider the earning and investing power you may give up if you stop working full-time to take Social Security at age 62. Most obviously, if you leave a job with good pay and benefits, it may be difficult to ever regain that level of compensation if you decide to return to work later.

    And while you are eligible for reduced Social Security benefits at 62, you won’t be eligible for Medicare until age 65. So in the meantime, you will probably have to pay for private health insurance . That can eat up a large chunk of your Social Security payments: The average yearly cost of health insurance for individuals age 55-64 was $10,789 in 2018. Why cut your benefits permanently just to pay for health insurance?2

    But there’s even more to the story.

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    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.

    What To Do: Coordinate Your Claiming Strategies

    When you and your spouse work together on your Social Security plan, you can make sure you’re maximizing your combined retirement benefits.

    For example, a low-earning spouse might start claiming benefits based on the high-earning spouse’s income at full retirement age. Meanwhile, the higher-earning spouse delays benefits to increase their retirement credits. This strategy can be tricky, so consulting a financial advisor is worth the cost.

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    What To Do: Consider Your Spouse’s Earnings Record

    Check to see how much you would be eligible to receive under your spouse’s work record before deciding how to claim benefits.

    If you’re divorced, you could also claim benefits under your ex-spouse’s earnings record if the marriage lasted at least 10 years, you are age 62 or older, you are unmarried, your ex-spouse is eligible to receive Social Security retirement or disability benefits, and your benefit from your own work is less than what you would receive under your ex’s earnings record.

    You Cant Work Anymore

    Should You Take Social Security Early in Light of a COVID ...

    Even the best retirement financial plans and projections can go awry. For example, you might have planned on working until you’re 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 isn’t worth continuing to work. In this case, the healthier lifestyle you’ll get by retiring early could outweigh the smaller monthly Social Security benefit.

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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.

    You Have No Other Steady Source Of Income

    If you reach age 62 and are let go from your job, you may have no choice but to file for benefits in the absence of outside income to pay your bills.

    Granted, you do have the option to charge expenses temporarily on a credit card while you look for new work or to take out another type of loan. But doing so is risky, because unfortunately, finding a job can be difficult when you’re older, what with age discrimination rampant in the workforce. The longer you carry any sort of debt, the more interest you accrue on it. A better bet may be to file for Social Security as soon as you can to get your hands on the money you need to keep functioning. That way, you’ll avoid debt, and if you do find a job shortly after claiming benefits early, you can undo them as discussed earlier and file again later to avoid a lifelong reduction.

    Many seniors file for Social Security at 62 simply because they can. Although that’s a decision that can backfire, there’s nothing wrong with claiming benefits at 62 if you have a well-thought-out reason for doing so.

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    What Happens If You Claim After Your Fra

    If you wait until youre 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. You also need to weigh in some other factors, including your expected longevity and whether you plan to file for spousal benefits. You will also need to consider the tax, investment opportunity, and health coverage implications.

    Pro: Youll Come Out Ahead If You Dont Hit Your Breakeven Date

    Reasons Take Social Security Early If I You Do Not Need It

    As weve seen, Social Security payouts are reduced at age 62, increasing through age 67 all the way up until age 70. The total amount you would receive from your Social Security payouts will break even at about age 77. This means that regardless of when you start taking payouts, if you live to age 77, youll receive approximately the same total amount. If you dont anticipate living beyond your breakeven date, whether due to lifestyle choices, personal health or family history, youll come out ahead if you start taking payments early. Although the amount will be reduced, youll be receiving those payments for a much longer time. Look at it this way if you start taking a $1,500 payout at age 62, youll have received $144,000 by the time you reach age 70.

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    What If I Change My Mind

    If you receive Social Security benefits at a reduced rate, but then change your mind, you have the option of withdrawing your application and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. But you are limited to one withdrawal per lifetime.

    For example, let’s say you elected to receive early benefits at age 62, but then decided to go back to work at age 63. You could withdraw your Social Security application within the first 12 months of receiving benefits, pay back the years worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.

    For important details about repaying benefits please read the SSA publication If You Change Your Mind.

    The Bottom Line On When To Claim Social Security

    The conventional wisdom is to wait as long as possible to file for Social Security especially if you dont need the money. But this is a choice that should be carefully thought out by every individual and couple, not something that should be decided by the media or the masses.

    When we go over the pros and cons with our clients and explain how claiming at 62 may be to their advantage, theyre often surprised and always delighted to know that its an option. If youre unsure about how claiming early might help or hurt your retirement future, consider talking to a financial adviser who is well-versed in Social Securitys many rules and claiming options. You may find that claiming early makes sense for you, too, as part of your overall retirement plan.

    Kim Franke-Folstad contributed to this article.

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