Early Benefits Can Still Pay Off
However, taking early benefits can still pay off despite the reduced monthly check. But youll want to be sure you budget for a reduced benefit.
No one can predict how long youll live, but if youre facing a potentially significant reduction in life expectancy and are short of income, taking Social Security early may be appropriate, Neiser says.
Married women are also good candidates for claiming early benefits because they are likely to outlive their husbands. Those widows then become eligible to receive the greater of either their benefit or their late husbands benefit.
However, this scenario works only if the husband does not claim his benefits early. By not claiming early benefits, the husband effectively increases the monthly benefit his wife eventually receives. So youll want to calculate how filing early will affect your spousal benefit here.
Your Social Security Full Retirement Age Plays A Big Role Know It
First things first:Determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67.
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. More on that in a moment.
Earned Income Before Age 66 Or 67
The Social Security Administration defines your full retirement age as the day you are able to start collecting benefits. It depends on the day you were born, and for most people ends up being about age 66 or 67. But you’re allowed to retire, as the SSA defines it, as early as age 62. If you reach this age and you are still working, you may wish to start receiving your benefits right away, but this doesn’t always make the most sense in the long run.
Why? Because if you earn over the earnings limit, your benefits will be reduced. The SSA uses your own income to figure how much they should pay each month, and if you’re making money they assume you don’t need the full amount. But once you reach full retirement age your benefit each month will stay the same, whether or not you have any other sources of income.
You should also keep in mind that when tax season rolls around, your benefits are counted as income, and so your monthly check from the SSA will be taxed along with any other income you earn.
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What Is The Break Even Point And Why Is It Important
Whenever you wait until age 70 to collect benefits, you’ll be missing out on the years you weren’t receiving payments. If you’re deciding when to collect, you might consider calculating your break even point.
Your break even point tells you at what age you’ll receive more in total Social Security earnings, by collecting at full retirement age or at age 70, than you would have had you collected benefits early.
For many people, the breakeven point is around 12 and ½ years after age 70 or full retirement age, says Blair.
For example, if you collected early at age 62 rather than delay until your full retirement age of 67, you would be earning an additional five years worth of benefits. However, if you collected at 62, your benefit would be reduced by 30%. An individual collecting at age 67 would need to survive around another 12 years after collecting benefits to ‘break even’ compared to getting payouts starting at age 62.
You can calculate your own break even number, but note that the number might not be accurate if you don’t consider factors like the cost of living adjustment or having a spouse, divorced spouse or survivor’s benefit.
A Divorced Spouse May Be Eligible For Benefits
If you are divorced, you may qualify for Social Security benefits based on your ex-spouses work record. To be eligible for benefits, your ex-spouse must have reached the age at which they are eligible to begin receiving benefits .10
To qualify, you need to:
- have been married to your ex-spouse for at least 10 years
- have been divorced two years or longer
- be at least 62 years old
- be unmarried and
- not be entitled to a higher Social Security benefit based on your own work history.
If your former spouse is deceased, you may still receive benefits as a surviving divorced spouse , assuming that your ex-spouse was entitled to Social Security benefits, your marriage was at least 10 years, you are at least 60 years old, and you are not entitled to a higher benefit amount based on your own work history. If you remarry before the age of 60, you will lose the ability to receive a survivor benefit from your deceased ex-spouse.10
If your former spouse is living, the maximum amount that you are eligible to receive is 50% of what your former spouse is due at full retirement age. To receive the maximum benefit, you will need to wait until you have reached your own full retirement age.10
Your benefits are unaffected should your former spouse elect to take Social Security before reaching full retirement age or if your ex-spouse starts a new family.10
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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.
You’re Only Working Part Time
If you claim Social Security prior to your full retirement age while still holding down a part-time job, you might have your benefits reduced if your work income exceeds the annual limit. For 2022, if you are under full retirement age, your benefits go down by $1 for every $2 your income exceeds $19,560. If you reach full retirement age in 2022, your benefits go down by $1 for every $3 your income exceeds $51,960 prior to reaching full retirement age. If you’re working part-time to help make ends meet, taking Social Security at 62 might make sense.
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Reasons You Should Claim Social Security Early
Learn why Social Security at 62 might not be a bad idea. Social Security 101
Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can have a big impact on your planning. The earliest you can collect is age 62, but youll get more money if you delay your benefits past your initial Social Security eligibility. If you wait until after your full retirement age to start collecting Social Security you can earn delayed retirement credits, which will increase your benefits even more.
You might think that waiting for bigger benefits is better, but thats not always the case. There is no definitive answer to when you should collect Social Security benefits, and taking them as soon as you hit the early retirement age of 62 might be the best financial move.
What Is My Retirement Age
Americans can choose to start collecting Social Security benefits between the ages of 62 and 70. Many people want to start as soon as possible, which is understandable. After all, youve spent your career paying into Social Security, and it makes sense to take advantage of those benefits. However, just because you can start collecting at age 62 doesnt always mean its the best choice. This is because, for some people, 62 is not actually considered your full retirement age. If you were born after 1960, your full retirement age is 67. If you were born in the 1950s, your retirement age is around 66. These numbers have been adjusted over time in an effort to compensate for an increase in average life expectancy.
You need to wait until you reach your full retirement age to apply for social security if you want to receive your full benefits. However, if you wait past your full retirement age, youll generally receive a Delayed Retirement Credit that can slightly increase the amount of benefits you receive. The longer you wait after your full retirement ageup until you reach age 70the higher your benefit will likely become. You can find more detailed information on Delayed Retirement Credits on the Social Security Administrations website.
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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.
What Is Full Retirement Age
The size of your monthly Social Security benefit depends on a few factors, including how much you earned over the years, the year 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|
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How Much Do We Pay In Social Security Tax
Despite my pessimism about our nations retirement system, its a good idea to have a framework for when to start collecting benefits anyway. Im confident all of us will eventually receive some sort of national retirement benefits. If the government decides to fully break its Social Security promises, there will be a national revolt.
Make no mistake about it. Social Security is our money. In 2022, employees are required to pay a 6.2% Social Security tax on income up to $147,000, up from $142,800 in 2021. The maximum income amount for Social Security tax tends to go up about 2% a year.
In other words, if you make $147,000 in 2021, your maximum FICA tax will be $9,114. But dont forget. You also have to pay a Medicare tax rate of 1.45%. Therefore, your total FICA tax rate is 7.65%. 7.65% X $147,000 = $11,245.5. If you are self-employed, you have to pay double .
Given how much we pay in FICA tax each year, all of us have a right to eventually collect Social Security. If the government didnt charge us a Social Security tax each year, we could invest the money, use the money to save up for a down payment on a house, or spend it to live a better life.
In A Rush To File For Social Security Benefits At Age 62 Many People Are But Slow Down And Do The Math First Or You Might Regret It
When it comes to claiming Social Security retirement benefits, you may want to consider waiting to start benefits when youre 70.
That means not starting benefits when youre 62 , nor even full retirement age .
I know that starting benefits at age 70 might be a tough thing to reconcile with but it doesnt mean that you have to work until youre 70.
Here are three reasons why delaying taking your Social Security benefit to age 70 is a decision you may want to consider:
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Social Security Benefits For Surviving Spouses
If your spouse was receiving Social Security benefits upon their death, you must report the death as soon as possible. You can call the Social Security Administration at 1-800-772-1213 between 7 a.m. and 7 p.m. on weekdays or visit your local Social Security office in person.
You are eligible for a one-time, lump-sum death benefit of $255 from Social Security if:
- You were receiving benefits on your spouses record at the time of death, or
- If you were living in the same household as your spouse at the time of death.
Any benefits received in the name of your spouse during the month of death or later must be returned to the Social Security Administration as soon as possible.
If your spouse worked long enough under Social Security, you may be eligible for Social Security benefits. You must be age 60 or older or disabled and 50 or older to qualify.
How much youll receive depends on the percentage of your spouses benefit as well as your age and the type of benefit youre eligible for.
You must apply for survivor benefits in person. You can call Social Security at 1-800-772-1213 to request an appointment.
Special Rule As You Approach Full Retirement Age
If you are already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age . If you will reach full retirement age in 2021, you can earn up to $4,210 per month without losing any of your benefits, up until the month you turn 66. But for every $3 you earn over that amount in any month, you will lose $1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.
If you are self-employed, you may receive full benefits for any month during this first year in which you did not perform what Social Security considers âsubstantial services.â The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month . In other words, if you work in your business more than 45 hours in a month, Social Security may reduce your benefit.
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Are Your Social Security Benefits Taxed If You’re Still Working
If you have earnings from working or you have other taxable income, such as distributions from a retirement plan, part of your Social Security may be taxed.
Whether you’re still employed or you’re a retiree, you’ll pay taxes on up to 85% of your Social Security benefit if:
- You’re single with a taxable income of $34,000 or higher.
- You’re married filing jointly with a combined taxable income of $44,000 or higher.
You’ll pay taxes on up to 50% of your Social Security benefit if:
- You’re single with a taxable income between $25,000 and $34,000.
- You’re married filing jointly with a combined income between $32,000 and $44,000.
If your income is below these limits, you won’t owe taxes on your Social Security.
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When Is The Best Time To File For Social Security Benefits
Reading time: 3 minutes
Deciding the age at which you will begin to collect Social Security is likely to be a big factor in your retirement planning. Many retirees look forward to the day that they can apply for the benefits theyve spent their whole careers paying for. However, if you have a substantial nest egg and dont need the extra funds immediately, it may be in your best interest to wait a few years before claiming your benefits.