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How To Calculate When To Take Social Security

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Is It Better To Take Ss At 62 Or 66

How to Calculate Your Social Security Benefits

Age matters. Claiming Social Security early at 62 will result in a reduced monthly benefit compared to how much youre eligible to receive at full retirement age . Put off drawing benefits until age 70 and your monthly take will increase by as much as 8% a year.

When Will You Collect

The SSA calculates your benefit amount at your full retirement age . This depends on the year you were born. FRA by birth year is:

  • 19431954: age 66
  • 1955: age 66 and two months
  • 1956: age 66 and four months
  • 1957: age 66 and six months
  • 1958: age 66 and eight months
  • 1959: age 66 and 10 months
  • 1960 and later: age 67

The monthly amount you are eligible to receive at your FRA is considered your full benefit, but it is not your minimum or maximum benefit.

You have the option to file for early retirement as early as age 62. But, you may choose to delay taking your benefits until as late as age 70.

There are many reasons why you might choose to take early retirement or to delay it. That choice has a direct impact on the amount of your monthly payment. If you opt for early retirement, you are choosing a lower monthly payment for the rest of your life. By choosing to delay your benefit to any age between your FRA and age 70, you lock in an increase.

Factors That Can Affect Your Benefit

Early retirement – If you elect to receive retirement benefits early, your benefit is proportionately reduced. You can elect to receive retirement benefits as early as age 62, but for each month of early retirement, your total benefit will be reduced by 5/9 of 1 percent, up to 36 months, and by 5/12 of 1 percent thereafter. For example, if you elect to receive retirement benefits at age 62 and your full retirement age is 66, then you would receive approximately 25 percent less each month than you would if you retired at age 66.

Delayed retirement – By contrast, you receive more if you delay receiving retirement benefits past full retirement age. Late retirement may increase your average earnings and you also receive a special delayed retirement credit. This credit is figured as a percentage of your Social Security benefit and is in addition to your regular benefit, but doesnt affect your PIA.

The delayed retirement credit varies depending on when you were born and how many months or years after full retirement age you retire . For example, if you were born in 1944 , you will earn an extra 8 percent of your benefit for every year you delay retirement up to age 70. This means that if you delay receiving your retirement benefit until age 70, your benefit payment will be 32 percent larger than if you began receiving retirement benefits at age 66.

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Average Indexed Monthly Earnings

To calculate your AIME, the administration takes each year’s income throughout your working life and adjusts it for inflation . It then caps those adjusted incomes at the taxable maximum for Social Security. The agency then takes the 35 highest-earning years and calculates an average monthly income from them. This is your AIME.

For people who worked more than 35 years their lowest-earning years are dropped from the calculation. For people who worked less than 35 years the Social Security Administration calculates a “$0” in place.

Calculate For Both Of You

Free Social Security Calculator Tool: Estimate Your Benefits â My Money ...

Many would-be Social Security beneficiaries also fail to consider the effect claiming early will have on their surviving spouses Social Security benefit. In essence, claiming early permanently reduces the survivors benefit while waiting to claim at least until full retirement age means your survivor will receive the highest possible benefit. A surviving spouse typically receives the deceased spouses benefit. If the deceased spouse claimed early at age 62, however, the survivor’s benefit could be 25% to 30% less than it could have been.

Heather Schreiber, the founder of HLS Retirement Consulting, gave this example: If you are a married couple, particularly with a wide disparity in Social Security income benefits, the latter of the couple to survive will rely exclusively on the benefits of the higher wage earner at the first spouses death.

Therefore, it is important to view a break-even analysis from the perspective of the cumulative lifetime benefits of the couple rather than being singly focused, she says.

She notes that the inflation-adjusted income benefits from Social Security are, often, the only income source that is guaranteed to last a lifetime.

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Wondering When To Take Social Security Use These Calculators To Find Out

There are a lot of reasons why people may not be able to wait until 70 to start taking Social Security. These can include health issues, the inability to find work and even overwhelming debt.

If you cant wait until 70, its best to at least wait until your full retirement age to claim your benefit. to find your full retirement age.

Meanwhile, there are a lot of free calculators available to help figure out the best time to take Social Security based on your individual circumstances.

What Is Full Retirement Age

The size of your monthly Social Security benefit depends on a few factors, including how much you earned over the years, the year you were born, and the age when you start claimingdown to the month.

Youll receive your full monthly benefit if you start claiming when you reach what Social Security considers your full retirement age , sometimes also referred to as normal retirement age. FRA was 65 when Social Security began, but it has been raised to 67 for anyone born in 1960 or later. To find your FRA, see the chart below.

Finding Your Full Retirement Age

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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.

Calculating Your Social Security Break

How To Calculate When To Take Social Security In Under 3 Minutes

The timing of your Social Security benefits is important it could make a difference of tens of thousands of dollars in your retirement income over your lifetime. And though there are many factors to consider when evaluating Social Security benefits , its fairly simple to calculate your Social Security break-even age. Lets use an example to illustrate the calculation:

Our hypothetical subject, Jeff, has reached full retirement age and is deciding whether to begin collecting benefits now or to delay for one year. If he collects now, hell receive $1,000 per month. But if he waits to take his benefit, it will increase by 8% each year after his full retirement age . Therefore, if Jeff waits a year to apply for benefits, hell get $80 more, for a total of $1,080 per month. If Jeff decided to wait that year, how long would it take him to break even?

Essentially, Jeff forfeited $12,000 , but gained $80 a month. To find out his break-even age, Jeff would divide $12,000 by $80 a month, which comes out to 150 months, or 12½ years. So, if Jeff waits for one year to start taking his Social Security benefit, it will take him 12½ years to get back to even.

Based on the above, if Jeff thinks he’ll live more than 12½ years, it could make sense to delay taking Social Security, because he would eventually come out ahead. If not, he may want to take his benefits now.

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Weigh Taking Early Retirement Benefits Against Full Retirement Benefits

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      People nearing retirement can implement a number of strategies to cover living expenses during their post-working years. Although retirement plans, such as 401s and IRAs, are part of a retirement strategy for many, Social Security benefits are the most common source of income among retirees. The benefit is a guaranteed amount that you can start receiving as early as age 62, or you can wait until 70 to receive the highest monthly payment.

      Various factors impact how much Social Security income you get when you start claiming benefits. To determine the optimal age to start taking benefits, you need to calculate your Social Security breakeven age to ensure that you balance payments versus longevity.

      Tax Considerations For Social Security Benefits

      How do these tax considerations affect when you should apply for Social Security benefits? At todays , they may not have much of an impact on most people. Still, tax rates and income thresholds can change, so its worth remembering that you will lose less of your Social Security to taxes if you are in a lower marginal tax bracket when you begin to collect.

      You should also note that if you decide to return to work, even part-time, and arent yet at your FRA, your Social Security benefits may be temporarily reduced. The reduction is $1 for every $2 of earned income over $18,960 in 2021 . During the year when you reach your FRA, your benefits will be reduced by $1 for every $3 in income over $50,520 in 2021 until the month when you become fully eligible. That money isnt lost, however. The SSA will credit it to your record when you reach your FRA, resulting in a higher benefit.

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      Defining The Social Security Break

      Your Social Security break-even age represents, in theory, the ideal point in time to apply for benefits in order to maximize them.

      Remember, you can begin taking your benefits at age 62 at a reduced amount. But by taking your benefits at this earlier age, youll receive more Social Security checks over your lifetime assuming you reach your desired life expectancy.

      On the other hand, delaying your benefits past full retirement age increases them year over year until you reach age 70. Currently, the full retirement age for most people is either 66 or 67 years old, based on Social Security Administration guidelines. If you wait until age 70 to start claiming your benefits, youd receive 132% of your regular monthly benefit amount. So the trade-off is receiving fewer checks from Social Security but the ones you do get would be larger.

      Your break-even age is the point at which youd come out ahead by delaying Social Security benefits. Your actual Social Security break-even age can depend on the amount of benefits youre eligible to receive, your tax situation and things like how inflation might affect the purchasing power of your benefits.

      Can You Use The Numbers From Your Social Security Statement

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      Not really, unless you are just about to retire. Your Social Security statement uses a current dollars approach, which means that it assumes that neither your earnings nor the average wage index will increase past the statement date. Thus, unless you are within a couple years from retirement, your Social Security statement is likely to grossly understate your projected benefit at retirement.

      However, there is one piece of valuable information you can get from your statement: your Social Security earnings history. These are the numbers you can plug into your retirement calculator to get an accurate projection of your Social Security benefit.

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      Finally What About The Stock Market

      A declining portfolio could have an impact on a retiree’s cash flow needs. If a retiree gets to a point where the declining value of his/her portfolio cannot sustain their cash flow requirements, then it would be an appropriate time to consider taking Social Security benefits earlier than previously planned.

      Yes, the decision regarding when to take Social Security is complicated, but it’s a decision that should be integral to your retirement planning, and one that many retirees tend to skip. According to Employee Benefit Research Institute’s 2018 Retirement Confidence Survey, only 23% of workers try to maximize their benefits by planning when to claim Social Security.

      So, once you’ve determined your break-even age, I encourage you to take the next steps: Consider your individual circumstances, get some guidance, and make a plan. You could save thousands.

      Compare Two Application Ages

      Use the following calculation to compare the financial difference between two Social Security retirement benefit application ages. The U.S. Social Security website provides estimated benefit payment amounts of different claim ages.

      The term “Social Security” is used in the U.S. to refer to the system that provides monetary assistance to people with inadequate or no income. The term can be better understood by thinking of it as the “financial security of society.” Although they may not go by the same name, there are many similar government systems in place throughout the world. This calculator is specifically intended for U.S. Social Security purposes.

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      Explore How The Age You Start Collecting Social Security Affects Your Retirement Benefits

      The calculator bases your benefit estimate on current formulas from the Social Security Administration. Your answers are anonymous. Because we do not access or use your Social Security earnings record, these are rough estimates.

      Your estimated benefits:

      Select claiming ages on the graph to see how your estimated benefit changes.

      Claiming at age Age 67 is your full benefit claiming age.

      Compared to claiming at your full benefit claiming age.

      Social Security retirement benefits are not designed to be your sole source of retirement income, but waiting even one month will increase your benefits.

      Social Security Bend Points

      Social Security Calculator – When to Start Taking Social Security

      The Social Security benefits formula is designed to replace a higher proportion of income for low-income earners than for high-income earners. To do that, the formula uses what are called bend points.” These bend points are adjusted for inflation each year.

      Bend points from the year you turn 62 are used to calculate your Social Security retirement benefits. The example in the table below uses 2020 bend points. It works like this:

      • You take 90% of the first $906 of AIME.
      • You take 32% of the next $5,785 of AIME.
      • You take 15% of any amount over that $5,785.
      • You total those three numbers.

      The result is your primary insurance amount, or PIA, the amount you will receive if you begin benefits at your Full Retirement Age .

      Your PIA is rounded to the next lowest dime, and your benefit amount is rounded to the next lowest dollar.

      Technically, your PIA is calculated, rounded to the next lowest dime, and then any inflation adjustments are applied. That number is then rounded to the next lowest dime. Then any increase or decrease based on age is applied. That number is then rounded down to the next lowest dollar.

      You can see current and historical bend points and the current year’s bend points on the Bend Formula Bend Points page of the Social Security Administration’s website.

      In the example in the table below, you can see how the AIME calculated in the previous step was plugged into the bend point formula to calculate the PIA.

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      What Does Aarps Social Security Benefits Calculator Do

      The calculator provides an estimate of your Social Security benefits, based on your earnings history and age. Our tool also helps you see what percentage of daily expenses your payments can cover, and how you can increase your benefits by waiting to collect. It can also tell you how your retirement earnings will be affected if you keep working after you claim your Social Security benefit.

      Costs Of Living Adjustment

      The COLA is an annual adjustment to your Social Security benefits based on inflation. It changes each year based on the Consumer Price Index for Urban Workers and Clerical Workers . For workers who do not retire at their earliest retirement age, it is applied cumulatively to the PIA.

      For example, the COLA in 2018 was set at 2%. If the worker from our example above chooses not to retire at 62, his PIA will still be adjusted upward to a resulting PIA of 2,339.40.

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      Factor In Mortality And Marriage

      Of course, the trick to coming out ahead by starting to collect social security later is to live long enough to reach the breakeven age.

      Whether or not you will be able to do that, though, is impossible to know. The Social Security Administration does provide a life expectancy calculator that can provide some general guidance. For example, according to this calculator, a 62-year-old male can expect to live to age 83.6. In the example given earlier, the breakeven age for coming out ahead by delaying collecting social security was 80, so on average it would make sense for a person in that situation to delay collecting social security to earn the maximum benefit.

      However, the life expectancy calculator is based on average life spans. Your health and family history are also important considerations in estimating how your life span is likely to relate to the average.

      It also makes a difference if you are married. Survivor benefits for spouses are increased if you delay when you start to collect social security. So, if you are married, there is a better chance that at least one of you will live long enough to reach the breakeven age. According to the Social Security Administration, a married couple at age 65 today has a 50-50 chance of at least one spouse living till age 90.

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