What Age Should You Collect Social Security
When it comes to retirement planning, you may have heard a lot about the benefits of tax-advantaged retirement accounts, how to choose investments, and maybe some of the details of any pension plans that you’re fortunate enough to have. But what about Social Security? After all, it provides the majority of retirement income for many Americans.
There’s really only one big decision you have to make about Social Security and that’s when to take it. Regardless of your full Social Security retirement age, which ranges from 65 to 67, you can collect retirement benefits as early as age 62 as long as you’ve paid into the program for at least 40 quarters or about 10 years.
However, for each year you delay, your benefit increases by about 8% until age 70. Is it worth the wait? Let’s look at some factors to consider.
When do you plan to retire?
You can receive Social Security benefits once you’re eligible even if you’re still working, but there are a couple of downsides to this. The first is that your wages can cause more of your Social Security income to be taxed.
The second downside is that if you’re under your full retirement age, you lose $1 for every $2 you earn above the earnings limit, which is $18,240 this year. Once you reach full retirement age, your benefits are recalculated to recoup those lost benefits but it can take up to 15 years to break even.
Do you have assets to draw from while you delay benefits?
To Wait Or Not To Wait
- Consider taking benefits earlier if
- Consider waiting to take benefits if
- Consider taking benefits earlier if You are no longer working and can’t make ends meet without your benefits.
- Consider waiting to take benefits if You are still working and make enough to impact the taxability of your benefits.
- Consider taking benefits earlier if You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
- Consider waiting to take benefits if You are in good health and expect to exceed average life expectancy.
- Consider taking benefits earlier if You are the lower-earning spouse and your higher-earning spouse can wait to file for a higher benefit.
- Consider waiting to take benefits if You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.
Bridge To Medicare At Age 65
Remember that while you are eligible for reduced Social Security benefits at 62, you won’t be eligible for Medicare until age 65, so you will probably have to pay for private health insurance in the meantime. That can eat up a large chunk of your Social Security payments.
Read Viewpoints on Fidelity.com: Your bridge to Medicare
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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.
A Quick Note About Life Expectancy: According To The Social Security Administration Average Life Expectancy For A 65
Your spouse: If you are married, you can explore additional strategies to maximize the benefits you receive collectively. Start by taking your spouse’s age, health, and benefits into account, particularly if you’re the higher-earning spouse. The amount of survivor benefits for a lower-earning spouse could depend on the deceased, higher-earning spouse’s benefitthe bigger the higher-earning spouse’s benefit, the bigger the benefit for the surviving spouse.
Whether you’re still working. Earning a wage can reduce your benefit temporarily if you take Social Security early. If you’re still working and you haven’t reached your full retirement age, $1 in benefits will be deducted for every $2 you earn above the annual limit .
In the year you reach your full retirement age, the reduction falls to $1 in benefits deducted for every $3 you earn above a higher limit . However, starting the month you hit your full retirement age, your benefits are no longer reduced no matter how much you earn.
Again, any reduction in benefits due to the earnings test is only temporary. You receive the money back in the form of a recalculated higher benefit beginning at full retirement age, so don’t use the reduction as the sole reason to cut back on working or worrying about earning too much.
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Change In How You Report Earnings
The Social Security Administration bases its benefit calculations on earnings reported on W-2 forms and on self-employment tax payments. Most individuals are not required to send in an estimate of earnings.
However, the Social Security Administration does request earnings estimates from some recipients: those with substantial self-employment income or those whose reported earnings have varied widely from month to month, including people who work on commission. Toward the end of each year, Social Security sends those people a form asking for an earnings estimate for the following year. The agency uses the information to calculate benefits for the first months of the following year. It will then adjust the amounts, if necessary, after it receives actual W-2 or self-employment tax information in the current year.
Once a beneficiary reaches full retirement age, his or her income will no longer be checked. Because there is no Social Security limit on how much a person can earn after reaching full retirement age, there is nothing to report.
What To Consider Before Filing For Social Security
A larger benefit check sounds great, but there are tradeoffs, and soon-to-retire folks should consider multiple issues before they decide one way or the other on when to file. If you really want to consider all the avenues, then youll have to think about your finances and longevity two issues that people have a hard time grappling with.
But heres the key trade-off: you can file early and take a reduced benefit, expecting that a shorter life span will mean you receive more now, or you could file at full retirement age or later and claim a bigger check, and eventually live long enough to claim more than the first approach.
Social Security is like longevity insurance, says Brent Neiser, a Certified Financial Planner and former chair of the Consumer Advisory Board at the Consumer Financial Protection Bureau. Its a stream of payments that will not stop throughout your life, so delaying your benefits to keep those payments as large as possible forms a helpful base to your retirement plan.
Neiser urges those who have not saved enough for retirement to use whatever means possible to postpone their Social Security benefits until after their full retirement age to help boost their future income.
You can use personal savings to help bridge the gap, but ideally you should plan to work a little longer , Neiser says.
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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.
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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Full Retirement Age: Age 6567 Depending On Date Of Birth
Your full retirement age is determined by your day and year of birth, and it is the age in which you get your full amount of Social Security benefits. For every year you delay taking your benefits from full retirement age up until you turn 70, your benefit amount will increase by almost 8% a year. It is referred to as a delayed retirement credit. This increase can result in more lifetime income for you and your spouse. Even after factoring in a potential return on investment and the monthly benefits you could have received if you claimed early, there can still be a $50,000$100,000 increase in lifetime benefits by waiting until you are older.
Do Seniors Pay Taxes On Social Security Income
The federal government taxes up to 85 percent of social security payments for seniors who earn more than a specific threshold, but never taxes the full benefit. If your combined income exceeds $ 34,000, 85% of your Social Security income may be taxable.
Are Social Security benefits taxed after age 70?
Calculating the exact amount of tax payable on social security benefits can be quite complicated. After the age of 70 there is no increase anymore, so you should claim your benefits even if they will be partially subject to income tax.
Go Ahead Retire At 62 And Claim Social Security At 67 Your Benefit Will Climb
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Have a question about saving for retirement or your personal financial situation? Whatever the question, Barrons Retirement can try to help. Email , and we might look to financial pros for answers.
Q: Im planning to retire at 62, but I wont collect Social Security until Im 67. Will I still get increased benefits even though I hadnt worked the last five years?
The short answer is yes. Retirees who begin collecting Social Security at 62 instead of at the full retirement age can expect their monthly benefits to be 30% lower. So, delaying claiming until 67 will result in a larger monthly check.
Working until age 67 also could increase your Social Security benefits, especially if you have a high salary or have gaps in your work history. Social Security benefits are calculated using your average indexed monthly earnings during the 35 years in which you earned the most money. Working fewer than 35 years results in a lower monthly benefit because you would have years that count as zero. Once youve hit the 35-year threshold, working until 67 could raise your monthly benefit by increasing the average amount you earned during your 35 best years.
Barrons brings retirement planning and advice to you in a weekly wrap-up of our articles about preparing for life after work.
If youve hit the 35-year threshold, I would say continuing to work has a nominal impact, Shuchman says.
Documents Needed To Apply For A Childs Social Security Card
To get a new SSN or replacement card, you will need to fill out the SSAs Application for a Social Security Card. You will also need original documents proving the applicants U.S. citizenship, age, and identity. If you are a parent applying on your childs behalf, you will have to prove your own identity and that you are their parent. Submitted documents need to be valid, unexpired originals.
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Your Sga Level May Determine Whether You Can Continue Receiving Benefits
You can receive Social Security Disability benefits as long as you meet the three criteria outlined above. If you return to work, earn more than the SGA level for your household, or recover from your disability to the extent that your illness, ailment, or condition can no longer be classified as a disability, you may lose your benefits. Your benefits may also stop irrespective of your age. Once you hit retirement age, your benefits will change to Social Security retirement income, and you will no longer receive disability benefits.
You may be able to start receiving Social Security retirement benefits earlier if you choose, and you may be able to receive them as early as the age of 62. Keep in mind that you are only entitled to your full benefits if you wait until you reach your full retirement age before you draw benefits. Taking your benefits early leads to a reduction in your benefits that will be maintained throughout the period during which you draw retirement. Also, if you opt to postpone taking your benefits until you reach the age of 70, your benefits will go up.
Full Retirement Age Vs Early Retirement Age
While understanding your full retirement age is a key part of the puzzle, its different from when you may start claiming Social Security benefits. Thats your early retirement age, which is 62 regardless of what year you were born. And while all Americans may start receiving benefits when they turn 62, doing so will decrease the amount of each monthly payment.
Heres a bit of the Social Security Administrations official jargon, which is essential for getting a complete picture of your benefits. Full retirement age is how old you must be to receive your full primary insurance amount , or the base-rate Social Security benefit youre eligible for given your lifetime earnings history.
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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:
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The Downside Of Claiming Early: Reduced Benefits
Consider the following hypothetical example. Colleen is 62 as of 2022. If Colleen waits until age 67 to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, she’ll receive only $1,400 a month. This “early retirement” penalty is permanent and results in her receiving up to 30% less year after year.
However, if Colleen waits until age 70, her monthly benefits will increase another 24% over what she would receive at her FRA, to a total of $2,480 per month.1 If she were to live to age 89, her lifetime benefits would be about $112,000 more, or at least 24% greater, because she waited until age 70 to collect Social Security benefits.2