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How To Calculate Early Social Security Retirement

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What Does Social Security Breakeven Age Mean

How Social Security Retirement Benefits Are Calculated [3 Easy Steps]

When you elect to take benefits early, you make a permanent choicemeaning that your benefits are reduced over the course of your lifetime, not just until your FRA. Your Social Security breakeven age is the point in your life when the total of those lower benefits comes to equal the total of benefits that you would have received if you had waited to take your benefits at FRA or even later.

Average Retirement Age In The Us

According to the Federal Reserve, the most common age to retire is 62. Though this coincides with the earliest age you’re eligible to draw Social Security, when you retire doesn’t necessarily have to revolve around Social Security or retirement account rules. What’s appropriate depends on who you ask.

Half of the respondents from the Federal Reserves 2019-2020 report on the Economic Well-Being of U.S. Households said they retired before age 62. Almost one-fourth of retirees retired between 62 and 64.

According to a 2019 survey by the Insured Retirement Institute, 24% of baby boomers plan to retire before they turn 65, 29% plan to retire between age 65 and 69, and 26% plan to retire at age 70 or older. Another 8% said they plan to never retire.

A 2018 Gallup poll of nonretired Americans found that people, on average, plan to retire at age 66.

  • People ages 18-29 expect to retire at age 63, on average.

  • People ages 30-49 plan to retire at age 65, on average.

  • People ages 50-64 plan to retire at age 67, on average.

  • Since 2009, Americans have said they expect to retire when they’re 65 to 67 years old, according to Gallup. Only 12% of Americans said they want to retire before age 60.

Many people consider their eligibility for various retirement benefits alongside their personal financial situation to pinpoint their optimal retirement age.

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.

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How Does The Social Security Administration Calculate Benefits

Benefits also depend on how much money youâve earned in life. The Social Security Administration takes your highest-earning 35 years of covered wages and averages them, indexing for inflation. They give you a big fat âzeroâ for each year you donât have earnings, so people who worked for fewer than 35 years may see lower benefits.

The Social Security Administration also makes annual Cost of Living Adjustments, even as you collect benefits. That means the retirement income you collect from Social Security has built-in protection against inflation. For many people, Social Security is the only form of retirement income they have that is directly linked to inflation. Itâs a big perk that doesnât get a lot of attention.

Gaining Back The Reduction In Benefits From Working

The Best Age to Begin Collecting Social Security ...

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 A Social Security Break

    In a nutshell, a Social Security break-even calculator can tell you when the best age is to start taking Social security benefits, in terms of how much money you could expect to receive over time. Going back to the previous example, lets assume that you track your benefit amounts over a 10-year, 20-year and 30-year period. Heres how your total benefits received would look over each of those periods, for all three starting points.

    Your cumulative benefits after 10 years:

    • $144,000, starting at age 62
    • $122,400, starting at age 66
    • $52,800, starting at age 70

    Your cumulative benefits after 20 years:

    • $288,000, starting at age 62
    • $326,400, starting at age 66
    • $316,800, starting at age 70

    Your cumulative benefits after 30 years:

    • $432,000, starting at age 62
    • $530,400, starting at age 66
    • $580,800, starting at age 70

    You can see that youd draw the most Social Security benefits in total if you wait until age 70 to start taking them, assuming you live to age 100. But that could be a big if when youre not in the best health.

    What you have to keep in mind when using a Social Security break-even calculator is that the numbers are hypothetical. They dont take into things that could affect your ability to draw benefits or how far those benefits might go, such as:

    Retirement Benefits For Qualified Family Members

    Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you’re receiving retirement benefits, the members of your family who may be eligible for family benefits include:

    • Your spouse age 62 or older, if married at least one year
    • Your former spouse age 62 or older, if you were married at least 10 years
    • Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
    • Your children under age 18, if unmarried
    • Your children under age 19, if full-time students or disabled
    • Your children older than 18, if severely disabled

    Your eligible family members will receive a monthly benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.

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    I Dont Have Anything Saved What Should I Do

    Your options are limited here, but there are moves that may get some Social Security income flowing now while preserving the possibility of higher benefits later.

    One strategy is to claim benefits now but suspend them later to accumulate what are known as delayed retirement credits. Lets say our out-of-work 62-year-old claimant finds a new job at 64. When she reaches her full retirement age, she could suspend her benefits and begin accruing delayed credits, calculated from her already reduced benefit. Doing so would add roughly $50,000 to her lifetime benefit, Mr. Meyer said. And if she waits until 63 to make her initial filing and then executes this suspend strategy, the addition to her likely lifetime payout will rise to about $71,000.

    You can only suspend once, but it does add an element of flexibility that can result in more cumulative benefits, Mr. Meyer said.

    People who gain new employment while receiving Social Security should be aware of one complication here. Its called the retirement earnings test.

    If you claim benefits before your full retirement age and keep working, Social Security withholds a portion of your benefits if your earnings exceed certain amounts, a figure known as the exempt amount.

    Taking Social Security In The Pandemic: What To Know

    How Early Retirement Affects Social Security

    Suddenly unemployed older workers who had hoped to delay filing have options that can boost their lifetime benefits.

    The trend has been moving in a positive direction: Over the past decade, far more workers who are eligible for Social Security have been waiting to file, often substantially increasing their lifetime annual benefits.

    But the stunning job losses in the pandemic-induced economic crisis could bring this trend to a crashing halt, as suddenly unemployed older workers without substantial savings scramble to meet living expenses.

    At a time when fewer retired households can rely on traditional pensions and only about half own retirement accounts, Social Security is the most important benefit for most Americans. Even in good times, there is no simple, one-size-fits-all answer when it comes to timing a claim your longevity, savings and any other pension income are important factors.

    Now the decision is complicated by the highly uncertain outlook for the economy, jobs and financial markets. But even if you need Social Security income immediately, you may have options worth considering that can boost lifetime benefits.

    Lets review the pros and cons of different strategies for claiming benefits during the coronavirus pandemic.

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    Do You Plan To Continue Working In Your 60s

    Working in your 60s will help you maximize your income and savings.

    Your benefits are based on your highest 35 years of earnings. Each year of work can add higher earnings to your record by replacing years with low earnings such as those when you were a student, were unemployed, or took time off to care for someone. When you work and wait to claim until age 70, you can increase your monthly benefit by more than 75 percent! Working in your 60s also gives you more time to save on your own for retirement.Review your earnings record on my SocialSecurity.

    Working in your 60s will help you maximize your income and savings.

    Your benefits are based on your highest 35 years of earnings. Each year of work can add higher earnings to your record by replacing years with low earnings such as those when you were a student, were unemployed, or took time off to care for someone. When you work and wait to claim until age 70, you can increase your monthly benefit by more than 75 percent! Working in your 60s also gives you more time to save on your own for retirement.Review your earnings record on my SocialSecurity.

    You can maximize your benefits even if you work fewer hours or stop working.

    You can maximize your benefits even if you work fewer hours or stop working.

    Consider working in your 60s for an extra boost to your income and savings.

    Consider working extra years in your 60s for an extra boost to your income and savings

    Working After Full Retirement Age Faq

    Retirees may work while collecting Social Security benefits, but those younger than their FRA will be subject to the retirement earnings test .

    Under this test, if your earnings exceed a certain limit , you will temporarily forfeit some or all of your benefits. Once you reach full retirement age, your benefit is recalculated and you may receive most of that money back.

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    Are Social Security Benefits Taxable

    If you have a lot of income from other sources, up to 85% of your Social Security benefits will be considered taxable income. If the combination of your Social Security benefits and other income is below $25,000, your benefits wonât be taxed at all. The amount of your benefits that is subject to taxes is calculated on a sliding scale based on your income. Money that Social Security recipients pay in income taxes on their benefits goes back into funding Social Security and Medicare.

    If your retirement income is high enough that your benefits are taxable, how do you pay those benefits? You can ask Social Security for an IRS Voluntary Withholding Request Form if youâd like the government to withhold taxes from your Social Security benefits. Otherwise, youâre expected to file quarterly tax returns to pay these taxes over the course of the year.

    That covers federal income taxes. What about state income taxes? That depends. In 13 states, your Social Security benefits will be taxed as income, either in whole or in part the remaining states do not tax Social Security income.

    What If I Delay Taking My Benefits

    10 free or cheap Social Security calculators to help you ...

    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 1951 and your full retirement age is 66. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by two . This makes your benefit 16% 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 its important to consider your personal circumstancesits not always possible to wait, particularly if you are in poor health or cant 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.

    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 .

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    Just Use The Government’s Online Tool For A Really Eye

      One of the most common questions I receive from financial advisers concerns the impact of early retirement on future Social Security benefits. They wonder if the estimated benefits statement that their clients receive accurately portrays future benefits if their clients stop working before full retirement age.

      In general, the statement assumes you will continue earning about the same amount of money as you did in the previous year until you reach retirement age. Every adult with an earnings history should set up a personalized Social Security account to get access to their estimated benefit statement 24/7.

      Retirement benefits are based on your highest 35 years of earnings and your age when you start receiving benefits. If you stop work before you have 35 years of earnings, SSA uses a zero for each year without earnings to calculate your retirement benefits. Even if you have 35 years of earnings, some of those years may be low earnings years when you first started working. Those low earnings years will be averaged in, creating a lower benefit than if you had continued to work.

      The Social Security benefit estimates do not include annual cost-of-living adjustments, which means your future benefits could be higher than the estimate. You are eligible for COLAs starting in the year you become eligible for benefits at age 62, even if you do not claim benefits until age 70. The COLAs for each of those intervening years will be applied once you claim benefits.

      Whats Full Retirement Age

      Full retirement age is when youre eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1951 or later, your full retirement age is now some point after age 65all the way up to age 67 for those born after 1959. If you were born before 1951, youve already reached age 66 and full retirement age.

      Retirement ages for full Social Security benefits

      If you were born in

      Your full retirement age is

      1950 or earlier

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      I Need Income Now Why Wait To Claim Social Security

      Your claiming age matters a great deal. You can file as early as 62, but your annual benefit will be higher for every year you wait, until 70.

      Social Security uses an actuarial formula tied to your full retirement age the point at which you can claim 100 percent of the benefit youve earned over the course of your working life. For example, if you turn 62 this year, your full retirement age is 66 and 8 months.

      If you file before your full age, your benefit will be reduced as much as 6.7 percent annually, depending on when you claim. The bite is bigger than in the past because of changes enacted in 1983, when a gradual increase in the full retirement age from 65 to 67 was set in motion. Those increases, which still are being phased in, effectively set the bar higher for claiming a full benefit.

      Filing at 62 this year means youll receive 72 percent of your full benefit, noted Richard W. Johnson, director of the program on retirement policy at the Urban Institute, compared with 80 percent for someone who was born in 1937 or earlier and retired at that age .

      That lower income can really sting when you reach your 80s and out-of-pocket medical expenses and spending on home and residential care often surge, Mr. Johnson said.

      Even a delay of a year or two past the full age can meaningfully increase benefits and mitigate your risk of falling short of income in retirement.

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