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.
How Should I Decide When To Take Benefits
Consider the following factors as you decide when to take Social Security.
Your cash needs: If you’re contemplating early retirement and you have sufficient resources , you can be flexible about when to take Social Security benefits.
If you’ll 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 you’ll 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 you’ll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if you’re in poor health or have reason to believe you won’t beat the average life expectancy, you might decide to take what you can while you can.
What Age Is Considered Early For Retirement
Defining an “early retirement” might seem subjective, but there are a few specific ages that government agencies use to give financial planners guidelines. One common definition of an early retirement age is any earlier than 65that’s when Medicare benefits kick in.
It isn’t just the lack of Medicare benefits that early retirees have to plan for. Here are some of the milestone ages for retirees, along with some ways for early retirees to work around them.
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Youre Planning Your End
Your Social Security benefits stop paying at your death, so if you die prior to collecting benefits, youll have missed out on benefits entirely. You need to figure out how to maximize your Social Security income, instead. For example, say youre planning to wait until age 70 so you can claim the larger monthly benefit. If you die right before your 70th birthday, you wont receive any benefits. Its very difficult to predict how long youll live, especially if youre in good health now. However, if you are suffering from a terminal or serious illness, the increased monthly benefit for delaying Social Security might not be worth it.
Financial Benefits Of Working Longer
Many people want to retire as soon as it is financially feasible to do so, but it’s crucial to consider the earning and investing power you may give up if you stop working full-time and take Social Security at 62. If you leave a job with good pay and benefits, it may be difficult ever to regain that level of compensation if you need or want to return to work later. Of course, not everyone can keep working, but it is something to consider if you are healthy and have the opportunity to stay in the workforce, in either a full-time or part-time capacity.
The compensation benefits of your job could also affect your Social Security. Some companies allow stock awards to continue to vest after retirement date, and even into years to follow. These payouts are considered income, and could cause your Social Security payment to be taxed, or taxed at a higher level than in years after the awards have fully distributed. Delaying Social Security payments until those other income sources have been reported for tax purposes is worth consideration.
But there’s even more to the story. As you approach retirement, you’re often at the upper end of your lifetime earnings trajectoryand of your ability to save more for retirement. In addition, if you can keep working, you can make “catch-up” contributions to a tax-deferred workplace savings plan like a 401 or 403 or a traditional or Roth IRA. Catch-up contributions allow you to set aside larger amounts of money for retirement.
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You Can Earn More With Retirement Accounts
Rather than rely on benefits that frequently change year to year, invest some of your money in a retirement plan. Whether thats a traditional/roth IRA or an employer-provided 401, contributing money to these accounts and allowing it to accrue over time will result in a much larger payout than can be expected from social security.
If you dont have savings yet, dont worry! 23% of Americans are in the same boat as you. And you can start a retirement savings account online today. Any money that youre able to save before you retire will make actually retiring that much easier.
What’s Full Retirement Age
Full retirement age is when you’re eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1955 or later, your full retirement age can be anywhere between age 66 and 2 monthsall the way up to age 67 for those born after 1959. If you were born before 1955, you’ve already reached age 66 and full retirement age.
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How A Social Security Break
Figuring out the right time to start taking Social Security benefits isnt always a straightforward process. A Social Security break-even calculator can help you get some perspective on the numbers so you know what you stand to gain or lose by taking benefits earlier versus later.
Social Security break-even calculators help you find the best age to start taking retirement benefits. They do this by comparing your cumulative Social Security retirement benefits paid at age 62, your full retirement age and at age 70 and estimating how long it would take the benefits paid at age 70 to break even with benefits paid starting at age 62.
Heres a simple calculation to give you an idea of how a Social Security break-even calculator works. Say that you have the option to begin receiving $1,200 a month in benefits at age 62. Youd receive $1,700 in benefits if you wait until full retirement age at 66. Or you could receive $2,200 a month in benefits by delaying them until age 70.
The break-even point represents when the cumulative benefits even out. So if you wait until age 70 to start taking benefits, it would take you until age 79 to break even with the benefit amount youd receive if you started taking them at age 62. If you were to start receiving benefits at age 66, it would take you until age 75 to break even with the benefits youd receive if you started them at 62.
Retire Now Claim Later
You can always take early retirement and still wait until later to begin your Social Security benefits. That is a particularly important strategy for married couples who want to make sure the surviving spouse gets a larger benefit later in life.
The highest monthly benefit between you and your spouse is what will become the survivor benefit amount when one of you passesat that point, you’ll only get that higher benefit amount, not both amounts.
For the purpose of maximizing your future survivor benefit, you may want to plan for the higher earner between the two of you to delay the start of benefits to age 70 if possible. The lower earner, however, may want to start their benefits at an earlier age.
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How Does Early Retirement Affect Social Security
Many adults look forward to retirement. And some wouldnt mind leaving the workforce ahead of schedule. But few people think about the drawbacks of retiring early. Few realize that an early retirement might affect their long-term financial plan and their access to certain benefits. A financial advisor can help you figure out all of your retirement and social security issues.
Social Security Disability Benefits
If you choose to apply for disability benefits and you qualify for Social Security disability, you will receive 100% of your monthly benefit. That 100% rate will continue when it switches over to Social Security when you reach your full retirement age. So, if you can successfully prove your disability case, you will receive more money each month continuously.
Disability claims can be time consuming and challenging, but if you have the proper documentation to support your claim, you should be able to prove your case and be awarded benefits.
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Limits On Earned Income If Claiming Early Benefits
Until you reach full retirement age, Social Security will subtract money from your retirement check if you exceed a certain amount of earned income for the year. For the year 2021, this limit on earned income is $18,960 . The amount goes up each year. If you are collecting Social Security retirement benefits before full retirement age, your benefits are reduced by $1 for every $2 you earn over the limit. Once you reach full retirement age, there is no limit on the amount of money you may earn and still receive your full Social Security retirement benefit.
Henry is considering claiming early retirement benefits this year, at age 64. Social Security calculates that if he does so, he’ll receive $866 a month . But Henry also intends to continue working part-time, with an income that will be about $5,000 over the yearly limit on earned income. If he does claim the early benefits and makes that part-time income each month, Henry would lose one dollar out of two from the $5,000 he earns over the limit, which means $2,500 for the year. So, by claiming early retirement and continuing to earn over the limit, Henry incurs a double penalty: His retirement benefits are permanently reduced by 13%, and he loses an additional amount every month to the extent he earns over the income limit.
Social Security does not reduce each monthly check by a small amount, unfortunately. Instead, the agency may withhold several months’ entire checks until the reduction is paid off.
Benefit Amounts Vary Depending On Your Social Security Retirement Age
Your Social Security retirement age and the amount you receive varies depending on several factors. For example, the earliest age you can collect your Social Security retirement benefits is 62, but there is an exception for widows and widowers, who can begin benefits as early as 60. If you start collecting benefits early and continue to work, your benefits may be reduced.
Here’s how this works with the basics on Social Security claiming ages from 60 to 70.
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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.
Changes On The Horizon
Right now, there are no concrete plans to raise the retirement age, or otherwise change Social Security.
But efforts to strengthen the system could be coming under President-elect Joe Biden.
Biden’s campaign platform calls for Social Security reform, but does not call for raising the retirement age. Advocates for preserving Social Security benefits are opposed to such a change because it amounts to a benefit cut.
Yet as people live longer that could force a change, according to Fichtner.
“If longevity increases, if we don’t increase the retirement age, then by default we are giving enhanced benefits or greater benefits than what’s intended,” Fichtner said.
For example, if benefits were adjusted according to today’s life spans, the retirement age would be 70, he said.
“If we continue to have increases in longevity, the Social Security retirement age is probably going to have to increase to account for that,” Fichtner said.
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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.
You Want To Start A Business
Some people think of retirement as a time to relax, but you might see it as an opportunity to do things you couldnt do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldnt be generating enough income. Social Security benefits could provide enough income to let you launch your business. And if your business is successful, the income it generates could be more than enough to offset the future reduction in benefits.
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It’s A Move That Might Really Pay Off
Age 62 is the earliest point at which you can claim Social Security. And if you want your full monthly benefit based on your earnings history, you’ll need to wait until full retirement age, or FRA, to get it. That won’t kick in until age 67 if you were born in 1960 or later.
Meanwhile, for each month you sign up for Social Security ahead of FRA, your monthly benefit will be reduced. File at age 62 with an FRA of 67, and you’ll be looking at a 30% hit to your Social Security income.
To be clear, it’s not like your full monthly benefit will be reinstated once you reach FRA. If you file early and slash your benefit, you can expect those lower monthly payments for life.
Clearly, that’s a major drawback to filing early. But in spite of that, there’s one situation where claiming Social Security at age 62 really is a smart move.
Increasing The Eligibility Age For Social Security Pensions
Social Security faces a long-term financing problem. Many young workers believe the problem is so severe they may never receive a Social Security check. The most logical solution to Social Securitys financing problem is to trim promised benefits and increase payroll taxes moderately. A sensible way to reduce future benefits is to increase the early eligibility age and normal retirement age for retirement pensions. This reform is justified by the substantial increase in life spans that has occurred since Social Security was established in the 1930s. An increase in life spans, when the normal retirement age remains unchanged, is equivalent to a sizable increase in lifetime Social Security benefits.
Increasing the retirement age is unpopular with voters. Unfortunately, so are all other reforms that would restore Social Security to solvency, including tax hikes and cuts in the formula for calculating full pensions.