Claiming Social Security Early Reduces Benefits
You can claim your Social Security retirement benefits as early as 62 but you will receive a smaller amount if you do that. How much your benefits will be reduced depends on your age when you claim Social Security. For example, lets say you are eligible for 100% of your benefits at age 67, which is the full retirement age for anyone born in or after 1960:
- If you claim Social Security early at age 62, your benefit will be reduced by 30%
- If you claim early at age 63, your benefit will be reduced by 25%
- If you claim early at age 64, your benefit will be reduced by 20%
- If you claim early at age 65, your benefit will be reduced by 13.3%
- If you claim early at age 66, your benefit will be reduced by 6.7%
Under this example, if you were eligible for $1,000 a month at your full retirement age of 67 then the benefit would be reduced to $700 a month if you claimed at 62 $750 if you claimed at 63 and so on, according to the Social Security Administration. The reduction is calculated each month, not on a yearly basis, so every month you wait after age 62 will mean a slightly bigger Social Security check.
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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
How Does Work Affect Your Social Security Payments
Many people continue to work beyond retirement age, either by choice or out of necessity. But if you are receiving Social Security benefits, you need to be aware of how working can affect your benefit payments. Earning income above Social Security thresholds can cause a reduction in benefits and mean your benefits will be taxed.
Whether it makes sense to work and collect Social Security at the same time is a complicated assessment that depends on how much you earn and when you begin taking Social Security benefits.
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If you work and are full retirement age or older, you can earn as much as you want and your benefits will not be reduced. However, individuals may begin taking Social Security retirement benefits early beginning at age 62. If you are younger than full retirement age, there is a limit to how much you can earn and still receive full benefits. If you earn more than $18,960 , Social Security will deduct $1 from your benefits for each $2 you earn over the threshold. In the year you reach full retirement age, you can earn up to $50,520 without having a reduction in benefits. However, if you exceed $50.520 in earnings, Social Security will deduct $1 from your benefits for each $3 you earn until the month you reach full retirement age. Once you reach full retirement age, your benefits will no longer be reduced.
For more information on Social Security, .
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How To Claim Social Security At 65
If you are eligible for Social Security benefits of any kind, you can apply in several ways. The SSA offers online enrollment through its website, where seniors and their surviving spouses and dependents can download and submit application forms.
Seniors can also apply for Social Security over the phone by calling 772-1213 325-0778). In 2020, Social Security offices may be closed to the general public in response to the COVID-19 pandemic, though most offices do remain open for in-person visits by appointment only.
Should You Jump On The Retirement Bandwagon
If you’re thinking about retiring, an estimated 6% COLA hike might tempt you to throw in the towel at work and claim Social Security benefits at 62. But heres why you dont want to do that.
And she uncovered something most people don’t know.
Her take is that anyone who is age 62 or older in 2022 and who is eligible for Social Security will profit from next years COLA even if they have not yet filed for benefits.
I worry that some people may rush to claim Social Security this year to benefit from the exceptionally large cost-of-living adjustment expected next January,” Franklin told me by email.
“Im sure most people do not realize that they automatically will benefit from next years COLA even if they have not yet filed for Social Security as long as they are at least 62 or older in 2022,” said Franklin, who wrote “Maximizing Social Security Benefits,” an online book that is available for $29.95 at MaximizingSocialSecurityBenefits.com.
If there are future inflation adjustments, she noted, those who are 62 and older would see inflation adjustments baked into future payments each year until they claim benefits all the way up to when they reach age 70.
She points out that the Social Security Administration notes: “Youre eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you dont get benefits until your full retirement age or even age 70.”
Those who turn 62 next year and afterward face another issue, too.
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When Medicare Comes Into The Mix
Age 65 is when Medicare eligibility begins. This doesn’t mean you have to enroll in Medicare at 65 on the nose. If you’re still working at that point and have access to an employer health insurance plan, you can hold off on registering for Medicare without incurring penalties. But if you don’t have access to a health plan through an employer, signing up for Medicare at 65 not only makes sense, but could make it so that Part B, which covers outpatient care, is less expensive throughout your retirement.
That said, you don’t have to sign up for Medicare and Social Security at the same time. And you may not want to.
If You Were Born Between 1943 And 1954 Your Full Retirement Age Is 66
You can start your Social Security retirement benefits as early as age 62, but the benefit amount you receive will be less than your full retirement benefit amount.
The chart below provides examples of the percentage of your full retirement benefit amount you and your spouse would receive from age 62 up to your full retirement age.
Social Security Benefits Taxable After Age 65
Social Security benefits subject to taxation are taxed at normal tax rates.
At 65 to 67, depending on the year of your birth, you are at full retirement age and can get full Social Security retirement benefits tax-free. However, if youre still working, part of your benefits might be subject to taxation. The IRS adds the figures for your earnings and half your Social Security benefits. If the total exceeds the Internal Revenue Services income limits, your benefits will be taxed.
Spouses And Social Security
You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is up to 35% while the reduction for claiming your own benefit is up to 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.
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Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be up to 30% less for the remainder of their lifetime.
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What Is Full Retirement Age
In addition to how much youve earned over the years, the size of your monthly Social Security benefit depends on when 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|
What Is Social Security
Social Security is the blanket name for several federal benefit programs that tens of millions of Americans depend on for a monthly stipend. The Social Security Administration pays benefits to eligible seniors, their dependents and survivors and people with certain medical conditions. Though there is some overlap between these groups, the support programs intended for each are separately administered and each has its own eligibility requirements.
An Example Of Taxed Benefits
Lets say you receive the maximum Social Security benefit for a worker retiring at FRA in 2021: $3,148 per month. Your spouse receives half as much, or $1,574 a month. Together, you receive $4,722 a month, or $56,664 per year. Half of that, or $28,332, counts toward your combined income for determining whether you have to pay tax on part of your Social Security benefits. Lets further assume that you dont have any nontaxable interest, wages, or other income except for your traditional individual retirement accounts required minimum distribution of $10,000 for the year.
Your combined income would be $38,332half of your Social Security income, plus your IRA distributionwhich would make up to 50% of your Social Security benefits taxable, because youve exceeded the $32,000 threshold. Now, you may be thinking, 50% of $56,664 is $28,332, and Im in the 12% tax bracket, so the tax on my Social Security benefits will be $3,399.84.
Fortunately, the calculation takes other factors into account, and your tax would really be a mere $225. You can read all about the taxation of Social Security benefits in Internal Revenue Service Publication 915.
Old Age Security And The Guaranteed Income Supplement
The Old Age Security pension is a monthly benefit available to most Canadians 65 years of age who meet the Canadian legal status and residence requirements. You must apply to receive OAS benefits.
The Guaranteed Income Supplement provides a monthly non-taxable benefit to low-income OAS recipients living in Canada. You must apply to receive GIS benefits.
For more information about OAS and GIS, see:
- Guaranteed Income Supplement from Service Canada
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Claiming Social Security After Your Full Retirement Age Increases Benefits
You can also wait as late as age 70 to start collecting Social Security benefits. Doing so boosts your retirement benefits. Theres no incentive to wait after age 70 to claim Social Security.
Heres how your benefit will increase if you wait to claim Social Security:
- If you delay claiming until age 68, your benefit will increase by 8%
- If you delay claiming until age 69, your benefit will increase by 16%
- If you delay claiming Social Security until age 70, your benefit will increase by 24%
Using this example, if you were eligible for a Social Security retirement benefit of $1,000 per month at your full retirement age of 67, the benefit would increase to $1,080 if you delay claiming until age 68 $1,160 if you delay to age 69 and $1,240 if you delay to age 70.
Once again, the delayed retirement credits accrue monthly, not annually, so every month you wait beyond age 67 will net you a slightly bigger monthly check from Social Security.
What Is The Future Of Social Security
If youre skeptical about the future of Social Security or wary of potential changes such as means testingwhich could reduce or eliminate benefits for the wealthy, or an increase in the full retirement ageyou may be tempted to start benefits early, under the assumption that its better to have something than nothing. The 2020 annual report from the Social Security Trustees, released in April, projects that the Social Security Trust Fund has enough resources to cover all promised retirement benefits until 2035, and will cover 79% of scheduled benefits for new retirees thereafter without changing the current system. The 2020 report does not include an adjusted projection due to impacts, if any, from the pandemic.
Over the longer term, changes such as later benefit dates or means testing may be considered.
In any situation, if youre particularly concerned about the future prospects for Social Security, thats a good reason to save more, and earlier, for your retirement.
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Social Security Spousal Benefits
Social Security is a vital source of retirement income for most women. For this reason, it is important to understand how the spousal benefit works and how it can impact the amount of Social Security income you receive.
As a spouse, you can claim a Social Security benefit based on your own earnings record, or collect a spousal benefit in the amount of 50% of your spouses Social Security benefit, but not both. You are automatically entitled to receive whichever benefit provides you the higher monthly amount. In order to qualify for Social Security spousal benefits, you must be at least 62 years old and your spouse must also be collecting his or her own benefits. Additionally, if you are the higher earner, your spouse can apply to collect spousal benefits based on your work record. It is important to note that claiming a spousal benefit does not impact the benefit amount received by the worker whose earning record is being used.
Taking Benefits Early
- At age 65, you would receive 45.8% of your spouses benefit.
- At age 64, you would receive 41.7% of your spouses benefit.
- At age 63, you would receive 37.5% of your spouses benefit.
- At age 62, you would receive 35% of your spouses benefit.
Recent Changes to Claiming Strategies that Affect Spousal Benefits
Applying for Benefits
Claiming Social Security At Age 65
Those whose Full Retirement Age is 65 are already that age or older. For those born after 1955 and before 1960, Full Retirement Age is 66 and some months. By retiring at age 65, those beneficiaries lose at least 12 months worth of increases. For those born in 1960 or after, Full Retirement Age is 67, so they lose up to 24 months of increases if they retire at age 65.
Below, we show how a person born in 1960 and entitled to a full benefit of $2,500 could see his or her monthly benefit change based on claiming age:
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How To Calculate Social Security Benefits
Lets say your FRA is 66. If you start claiming benefits at age 66 and your full monthly benefit is $2,000, then youll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, then your benefit will be reduced to 75% of your full monthly benefitalso called your primary insurance amount. In other words, youll get 25% less per month, and your check will be $1,500.
That reduced benefit wont increase once you reach age 66. Rather, youll continue to receive it for the rest of your life. It may go up over time due to cost-of-living adjustments , but only slightly. You can do the math for your own situation using the Social Security Administration Early or Late Retirement Calculator, one of a number of benefit calculators provided by the SSA that can also help you determine your FRA, the SSAs estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, individualized projections of your benefits based on your personal work record, and more.
Types Of Social Security Benefits
The most widely known benefit the SSA administers is the retirement pension system. More than 64 million older adults receive a monthly payment from this program, and for many people it’s the main or even sole source of support after retirement. Beneficiaries generally become eligible for Social Security pensions at age 62, though the monthly award amount is higher for seniors who delay their retirement age, with the maximum benefit being available at age 67.
If you are the widowed spouse or dependent child of a Social Security recipient, you might be eligible for benefits yourself. The SSA pays tens of millions of Americans a monthly benefit based on their relationship to a formerly eligible beneficiary who has passed away. Speak with an SSA worker to determine whether you are eligible for a survivors pension or similar benefit.
Many Americans with physical or cognitive disabilities receive Social Security benefits as part of a national disability support program. The amount this pays, along with any other conditions on cash support, vary on a case-by-case basis. Likewise, people with very low income may be eligible for the SSAs low-income support program. Together, these programs are known as SSDI/SSI. Ask a program worker about how these benefits may help you or someone you care for.
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