Is It Best To Take Social Security At 62 Or Wait Until 66
Social Security payments are reduced if you claim them before your full retirement age, which is typically age 66 or 67, depending on your birth year. If you sign up at age 62, you will get 25% smaller Social Security payments if your full retirement age is 66 and 30% lower payments if your full retirement age is 67.
Waiting To Receive Social Security Benefits
If you delay receiving Social Security benefits until after your full retirement age, you will get benefit credits that increase the amount you receive once you do start. But that increase stops once you’ve reached age 70.
For example, if your full retirement age is 67, you would receive an 8% increase each year that you postpone receiving your benefits until you reach age 70. However, if you delay receiving your benefits, you must still apply for Medicare before age 65. You can start the process during your initial enrollment period. This period lasts seven months: three months before the month of your 65th birthday, the month of your 65th birthday and through the third month after your 65th birthday.
If you miss your initial enrollment or don’t enroll in Medicare Part B because you have coverage through work or a spouse, you may have opportunities to enroll later.
If you don’t sign up for Medicare Part B during your initial enrollment period and don’t have other coverage, you could be charged a penalty of 10% for each year you delayed enrollment once you do enroll.
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.
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Certain Government And Railroad Employees
There are some jobs that dont pay into Social Security. Federal government employees hired before 1984 are included in the Civil Service Retirement System , which provides retirement, disability, and survivor benefits. These workers did not have Social Security taxes deducted from their paychecks and thus are not eligible to receive Social Security benefits.
They may still qualify if they have earned benefits through another job or a spouse. However, in these cases, CSRS pension payments may reduce Social Security payouts. Government workers who are covered by the Federal Employees Retirement System , which replaced CSRS, are eligible for Social Security benefits.
Most state and local employees have Social Security protection under a federal Section 218 agreement. However, some of these workersincluding those who work for a public school system, college, or universitywill not receive Social Security benefits if they do not pay Social Security taxes. They generally receive pension benefits from their employers.
How Your Social Security Benefits Are Calculated
Your Social Security benefits are based on the 35 calendar years in which your income was the highest. If you have fewer than 35 years of earnings, each year with no earnings will be entered as zero. You can increase your Social Security benefit at any time by replacing a zero or low-income year with a higher-income year.
There is a maximum Social Security benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2021, the maximum monthly benefit is $3,113. For someone filing at age 70, the maximum monthly amount is $3,895.
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Certain Immigrants Over Age 65
Retired people who immigrate to the United States will not have the 40 U.S. work credits that they need to qualify for Social Security benefits. One way to rectify this problem is to earn six work credits in the United States and receive prorated U.S. benefits combined with prorated benefits from their former country under a totalization agreement. This solution makes sense for workers who also do not have enough benefits in their home country to qualify for that countrys equivalent of Social Security payments.
Older immigrants who do not qualify for U.S. Social Security and whose countries laws allow them to receive benefit payments while residing abroad can claim their Social Security or pensioners benefits while living in the U.S.
What Other Factors Should You Consider When Deciding To Collect Social Security
Before you decide to collect Social Security based on your break even point, you should also consider how collecting early or delaying could impact the benefit your spouse receives.
Since the Social Security formula benefit is based on an individual’s 35 highest earning years, women often collect less in benefits than men because of career breaks during motherhood and overall lower lifetime earnings. However, the Social Security spousal benefit erases some of the disparity in Social Security earnings between men and women.
The spousal benefit is available to all spouses, regardless of whether the spouse has a work history or not . The spousal benefit is 50% of the higher earner’s benefit and in order for a spouse to receive the benefit, the higher-earner must be collecting their own benefit.
The Social Security administration automatically determines whether an individual would earn more in Social Security benefits if they collected on their own work record versus their partner’s work record.
For example, if the higher earner receives a $2,000 monthly benefit, the spouse is eligible to receive up to $1,000, depending on whether they choose to wait until full retirement age, says Kiner. For example, if someone collects the spousal benefit four years before full retirement age, their benefit will be 35% of the higher-earner’s benefits.
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When Can I Get Social Security
The earliest you can start receiving Social Security benefits is age 62. But the earlier you elect to receive your benefits, the smaller your monthly checks will be . To receive full benefits, you will have to avoid collecting Social Security until you reach your full retirement age. For people born in 1960 or later, that age is 67. And with the delay retirement credits, you can get your largest benefit at age 70.
If you decide to retire early, you have the option of delaying your Social Security benefits. This strategy may work particularly well for married couples.
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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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, 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, you may have to pay tax on up to 85% of your benefits.
No More File And Suspend
Note that the claiming strategy called file and suspend, which allowed married couples who have reached their FRA to receive spousal benefits and delayed retirement credits at the same time, ended as of May 1, 2016. However, spouses born before Jan. 2, 1954, who have attained their FRA may still be able to file a restricted application. It allows them to claim spousal benefits while delaying their own benefits up to age 70.
Social Security benefits can be taxable if your combined income is high enough.
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How Social Security Calculates Your Benefit
The amount you receive in Social Security benefits is based on an average of your 35 highest-earning years. So if you’re earning more now than ever before, your best bet is to keep working, if that’s possible, and delay receiving benefits until age 70. You’ll then be eligible for your maximum benefit.
On the other hand, if you keep working but start taking benefits early, you may run up against the Social Security income limits. For 2021, Social Security will deduct $1 of every $2 you earn over $18,960 if you are under your full retirement age. During the year you reach full retirement age, it will deduct $1 for every $3 you earn over $50,520 until the month you reach full retirement age. After that, you’ll receive your entire benefit.
Note that any money Social Security withholds from your benefit isn’t lost forever. After you reach full retirement age, Social Security will recalculate your benefit and increase it to account for the benefits that were withheld earlier.
The reduction in Social Security benefits for people who earn over a certain amount is based only on earned income. Unearned income, such as from pensions or investments, doesn’t count.
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.
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How Does Work Affect Social Security Benefits
You can receive Social Security benefits and work at the same timeyou can collect at age 62 whether youre working or not. However, if you collect benefits before your full retirement age, your benefits will be temporarily reduced by $1 for every $2 you earn above $18,960 per year in 2021. If you work during the year you reach full retirement age, $1 in benefits will be deducted for every $3 you earn above a higher limit , but only counting earnings before the month you reach your full retirement age.
Once you reach full retirement age, you can receive your benefits with no limit on your earnings. You are also paid back the earnings that were held while you were working.
Watch Out For Hidden Costs
Youll also want to consider other lifestyle factors, especially Medicare. Americans become eligible for federal health insurance coverage at age 65, well after when you can begin to file for Social Security.
If you stop working at age 62 and lose health insurance, you have to get supplemental insurance to bridge the gap until you turn 65 and Medicare kicks in, Neiser says.
If you work during retirement, you have another incentive to delay collecting Social Security. Earning too much at a job after you begin collecting your benefit can reduce your payout, but only if you have yet to hit full retirement age.
However, when you hit full retirement age, your benefit will increase to account for any benefit that was withheld earlier due to working. Heres how much you can earn and not get hit.
If youre younger than full retirement age for all of 2021, the Social Security Administration will deduct $1 of your monthly check for every $2 you earn above $18,960 per year.
If you reach full retirement age in 2021, the administration deducts $1 of your monthly check for every $3 you earn above $50,520 until the month you reach retirement age.
Youll also owe Social Security and Medicare tax on your earnings, even if youre already receiving benefits.
So those are some potential pitfalls to claiming Social Security early.
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Basic Rules For Spouses
- As a spouse, at age 62 you can choose to take a benefit based on your own earnings or a spousal benefit based on your spouses earnings. The only caveat is that to receive the spousal benefit, your spouse must have already filed.
- The spousal benefit is up to 50 percent of the earners benefit. The actual percentage depends on when you both file if you both wait until FRA or later, you collect a higher benefit. For example, if a husband files early at age 62, his benefit would be reduced by 25 percent. If his wife waited until FRA to file for a spousal benefit, she would collect 50 percent of his reduced benefit. However, if the wife decided to take spousal benefits at age 62, her benefit would be reduced even more to 35 percent of his reduced benefit.
Smart Move: A husband or wife maxes out their spousal benefit at FRA. There is no benefit to waiting longer.
- The impact on survivor benefits is similar. At FRA a widow or widower can collect up to 100 percent of their spouses benefit . When someone opts to collect benefits early, his or her surviving spouse will also collect a reduced benefit. Conversely, when a person decides to delay benefits, he or she is providing their survivor with a larger benefit. See Question 34 for more details on Social Security benefits for surviving spouses.
If you are divorced but were married for at least ten years and are currently unmarried, you can still collect a benefit based on your exs record. See Question 32 for more details.
Workers With Too Few Social Security Credits
Can you get Social Security if you never worked? No, because a minimum requirement to collect Social Security retirement benefits is performing enough work. The Social Security Administration defines enough work as earning 40 Social Security credits. More specifically, in 2021, an individual receives one credit for each $1,470 in income, and they can earn a maximum of four credits per year. So, 40 credits are roughly equal to 10 years of work.
If you earn the federal minimum wage of $7.25 an hour, then youll need 202.75 hours of work to receive one . By working just 17 hours a week for 50 weeks at this wage , you can earn the maximum credits per year. That means even those who work part-time so they can attend school or care for a childor those who work part-time because they cannot find full-time workcan amass Social Security credits without too much trouble.
Earned credits are accrued over a person’s lifetime and never expire, so anyone who has left the workforce with close to 40 credits might consider going back and doing the minimum additional work they need to qualify. You can check the number of credits you have so far by opening a Social Security account on the Social Security website and downloading your Social Security statement.
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Eligibility Requirements For Divorced Spouses
Before you can receive benefits on your ex-husbands Social Security work record, you must meet all of the following spousal-benefit eligibility requirements: your ex is entitled to Social Security retirement benefits your marriage lasted at least 10 years you are unmarried youre at least 62 years old, and the benefit youre entitled to on your own work record is less than the benefit youd receive on your exs record. If your ex-husband hasnt applied for benefits yet, but qualifies for them and is age 62 or older, you can receive benefits on his record if youve been divorced from him for at least two years and meet all of the requirements listed above.
How Your Social Security Benefits Are Earned
To be eligible for Social Security benefits in retirement, you must earn at least 40 “credits” throughout your career. You can earn as many as four credits each year, so it takes 10 years of work to qualify for Social Security.
In 2021, you must earn $1,470 to get one Social Security work credit and $5,880 to get the maximum four credits for the year.