You Can’t Work Anymore
Even the best retirement financial plans and projections can go awry. For example, you might have planned on working until you’re 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 isn’t worth continuing to work. In this case, the healthier lifestyle you’ll get by retiring early could outweigh the smaller monthly Social Security benefit.
Can A Divorced Woman Who Was Married For More Than 10 Years Claim A Spousal Benefit On Her Ex
Not any longer. The government eliminated a strategy that allowed a spouse or a divorced spouse to use a restricted application to file for a spousal benefit while letting her own retirement benefit grow. Now only people born before 1954 can do this.
Instead, when a spouse or divorced spouse files for benefits, the government will give her all the benefits she is eligible for whether it is her retirement benefit or a spousal benefit, said William Reichenstein, a principal of Social Security Solutions, a company that helps individuals maximize their lifetime income.
A divorced spouse can file for a spousal benefit even if the ex-spouse has not yet claimed a benefit as long as both are at least 62 and are divorced for more than two years. A married spouse must wait until her spouse has filed.
But if the ex-spouse dies, the picture changes. The surviving ex-spouse can claim a survivor benefit as early as 60 and allow her retirement benefit to grow until as late as 70. Or she can claim her reduced retirement benefit early and then switch to a higher survivor benefit at full retirement age.
If you were married for 10 years, keep tabs on the ex, Ms. Floyd said. Once he dies, that survivor benefit could be higher than your own.
You Can Claim Social Security Benefits Earned By Your Ex
Just because you’re divorced doesn’t mean you’ve lost the ability to get a Social Security benefit based on your former spouse’s earnings. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and you are single.
Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex-spouse’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still start collecting Social Security based on the ex’s record, though you must have been divorced for at least two years.
Note: Ex-spouses can also take a survivor benefit if their ex died after the divorce, and, like any survivor benefit, it will be worth up to 100% of what the ex-spouse received. If you remarry after age 60, you are still eligible for the survivor benefit.
A claiming strategy if youre divorced: Exes at full retirement age who were born on January 1, 1954, or earlier can apply to restrict their application to a spousal benefit while letting their own benefit grow.
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Theres A Social Security Spousal Benefit
Marriage brings couples an advantage when it comes to Social Security. One spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s Social Security benefit. For example, if your monthly Social Security benefit is worth $2,000 but your spouse’s own benefit is only worth $500, your spouse can collect a spousal benefit worth $1,000 — bringing in $500 more in income per month.
Just as the benefit based on your own work history is reduced if you claim it early, the same is true for a spousal benefit. That 50% figure is the maximum amount that only a spouse who is at least full retirement age is eligible for. Taking the spousal benefit early at, say, age 62, reduces the amount to as little as 32.5% of the higher earners benefit. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
You’re In Poor Health And Fear You Won’t Be Around To Collect Later
If, unfortunately, you don’t expect to live long enough to profit from delaying your benefits, your wisest course may be to take them sooner rather than later. Even if you were to receive a much bigger benefit by claiming at age 70, for example, you could be well into your 80s by the time you’d come out ahead in terms of the total benefits you’ve received. Financial planners refer to this as your breakeven age.
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Early Retirement And Social Security Payments
If youre wondering how much youll get from Social Security, you can check out our Social Security calculator. It estimates how much youll earn depending on your annual income, the year you were born and when you choose to start receiving benefits.
The calculations for Social Security benefits come from your highest 35 years of earnings. Thats how the Social Security Administration comes up with your average monthly indexed earnings . If you retire too early , youll receive less Social Security. Thats the downside to an early retirement.
The table below comes from the Social Security benefits retirement planner and calculates the monthly increase rate by birth year:
|Delayed Retirement Increase|
|8%||2/3 of 1%|
This means that the maximum number of retirement months is 60 for those retiring at age 62 when the full retirement age is 67. So your benefits could be reduced by up to 30%. Social Security calculates this maximum by multiplying 36 months by 5/9 of 1% and then adds total of 24 months multiplied by 5/12 of 1%.
Desire To Protect Purchasing Power
Most people want to collect their Social Security benefits as soon as they are able, which is at age 62. But too often they make this choice without knowing how it might affect them in the future. They don’t take into account the extra income that might come from delaying their start date by even a few years. If you live well into your 80’s, you could be giving up $50,000 to $150,000 in extra income by making a hasty choice about when to collect.
This is worth thinking about in the context of those golden years. Later in life you may have costs that you don’t have now. For many people, healthcare becomes more costly, or you may have new hobbies to support. Perhaps you’d like to travel more. Also, you’ll be living off of a monthly Social Security check, and maybe from a fund you set up many years ago. Your golden years are not the time you want to be strapped for cash, so before taking any action with the SSA, think about how your choice of when to collect benefits might impact your budget for the rest of your life. Delaying your start date may protect your income, and provide you with a great deal of purchasing power later in life.
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Can A Person Who Is Due A Public Pension Also Collect Social Security Benefits
Two rules could reduce benefits for people who are also entitled to a public pension on earnings not covered by Social Security.
One rule is the windfall elimination provision , which applies to people who worked at jobs covered by Social Security but also worked as noncovered government employees and are due a pension.
When it is time to claim benefits, many people are unprepared for these cuts, Mr. Blair said. Possible W.E.P.-related reductions are not reflected in the workers Social Security statement, which shows the history of annual earnings and estimates of future benefits only for jobs covered by Social Security.
You can have someone who looks at the Social Security statement and it shows a benefit of $1,000 at full retirement age, Mr. Blair said. But the individual a teacher who is due a public pension, for example may be surprised later if the benefit is much lower, he said.
In addition to W.E.P. reductions, a government pensioner who applies for a Social Security spousal or survivor benefit can face reductions. The government pension offset reduces those benefits by two-thirds of the government pension.
Pensioners are exempt from the W.E.P. offset if they paid into Social Security for 30 years or more in jobs with substantial earnings .
While You Can Start Collecting Benefits At Age 62 Should You Collect Early Or Delay
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For many elderly people, Social Security benefits make up one of their primary sources of income in retirement. For half of seniors, Social Security comprises about half of their retirement income, according to the Center on Budget and Policy Priorities. Some studies estimate that without Social Security, between 30% and 40% of senior citizens would be considered below the poverty line.
The age at which you decide to collect your Social Security benefits has a big impact on how much you’ll earn from the program over time because the longer you wait, the higher your monthly payout will be.
“Don’t just call Social Security and apply at age 62. Everybody has options. A married couple could receive $1 to $1.5 million in benefits over their lifetime. And single people could maybe half of that,” says Marc Kiner, a CPA at Premier Social Security Consulting. “And do not assume that Social Security will review your options with you.”
Select spoke to Kiner and Jim Blair, the lead consultant at Premier, about some of the factors you should consider when deciding when to apply for Social Security benefits.
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You Want The Money Now
Even if you don’t need your benefits early to support yourself, you may have other reasons for wanting to take them as soon as possible. Some people, for example, are concerned that Social Security may be unable to meet all of its obligations in the future, so they might as well get theirs now. Others believe they could do better by collecting benefits and investing them, rather than leaving it in the government’s hands.
That said, you would have to be a skilled investor to beat the 6% to 8% guaranteed annual return on your money that Social Security offers to those who wait until full retirement age or later.
The Basics Of Social Security
First off, every eligible worker can begin receiving Social Security benefits at age 62, but you’ll get a reduced monthly payment if you don’t wait until you’re at full retirement age. Your monthly payment will depend a few things, including your income throughout your working years, how much you paid into the Social Security system and at what age you claim benefits. Benefits are adjusted yearly based on the cost of living.
Full retirement age depends on the year you were born:
- If you were born between 1943 and 1954, full retirement age is 66
- If you were born between 1955 and 1959, full retirement age is between 66 and 67, depending on your birth year
- If you were born after 1960, full retirement age is 67
The Social Security website provides a calculator to help individuals understand how much their benefit will be reduced if they collect early. For example, if you were born in 1960 and wanted to collect as soon as you hit age 62, you’d receive 70% of your full retirement age payout. But if you waited until age 64 you’d get 80% of the full benefit.
By delaying the receipt of your benefits past full retirement age, you’ll earn even more than the full benefit for every year after full retirement age and before you hit age 70, you’ll collect 8% more each year.
- If you’re full retirement age is 66, you can earn up to 132% of your full benefit by waiting until you’re 70
- If you’re full retirement age is 67, you can earn up to 124% of your full benefit by waiting until you’re 70
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And The Results Are In
Here were the results: If you need to generate an income stream of $662 per month, it would require an annuity of $115,539 and an investment portfolio of nearly $160,000.
For the annuity, this would mean that youd have to achieve an annual return of 10% and for the portfolio option youd need to get a return of 21%.
Keep in mindthese are the returns needed to break even. Youd have to exceed that to do better that what youd get with almost no risk from the Social Security administration. Im not sure how you feel about your capabilities to get consistent investment returns like these, but if you canmaybe you should start a hedge fund. I can tell you that theres no way I would take that chance with a clients money.
Why Smart People Take Social Security Benefits Early
Most self-described retirement experts will advise you to wait as long as possible before applying for Social Security benefits. But Im here to tell you why this might be wrong. The argument in favor of waiting goes something like this: By holding out until full retirement at age 66, if not longer, you increase the chances of maximizing your cumulative lifetime benefits. This follows from the fact that the size of your monthly checks is determined in part by when you apply for Social Security. If you apply at age 62, which is the earliest allowed, then your benefits will be 25% lower than your primary insurance amount that is, the amount youre entitled to upon reaching full retirementRead More
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You Think Benefits Will Be Recalculated Later
Another common mistake people make is claiming benefits early with the assumption they’ll be recalculated to the standard benefit at full retirement age. If you start your checks sooner rather than later because you don’t think it will do any lasting harm, you’re likely to regret your choice, since this simply isn’t true.
The benefits reduction that comes from an early claim is permanent and affects all future cost of living adjustments . Your monthly income will never catch back up to where it would’ve been had you not claimed early.
The good news is, if you understand more about how the benefits program works, you can make sure that if you do claim early, you’re doing so for the right reasons. Or you may just decide to put off filing for your benefits so you can max out your monthly income and have more Social Security money to live on in your later years.
When Should You Start Collecting Social Security Benefits
To determine when you should start taking your benefits, its important to understand how much your check is affected by when you claim your benefit. As mentioned before, you can claim your benefit as early as age 62, but reaching full retirement age can secure your full benefit.
So when exactly is full retirement age? That depends on when you were born.
|Year of birth|
|65 + 2 months for each year past 1937|
|66 + 2 months for each year past 1954|
|1960 and later||67|
While the full retirement age used to be 65, changes to the program have increased that age. For example, those born in 1955 now have to wait an extra two months beyond age 66 to claim their full benefit. Someone born in 1959, for example, would have to wait until age 66 and 10 months to get the full benefit. Anyone born in 1960 or later, receives their full benefit at 67.
But some retirees choose to wait even longer. You may wait until as late as age 70 to claim your benefit, but then you must take it. Youll receive a bigger check for doing so.
So what is the upside to delaying your Social Security benefit after age 62? Your check wont get hit by a serious benefit reduction. Heres how much a $1,000 monthly check will become if you claim your benefit as soon as youre eligible at age 62.
|Year of birth||If you file at 62, benefit reduced by:||A $1,000 check becomes|
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