Are You Currently Healthy
Your health status may affect your timing decision, although possibly not in the way you expect. Beneficiaries already struggling with poor health in their early 60s may be tempted to take benefits as early as they can.
Receiving lower payments earlier means you get more benefits over a lifetime if you pass away relatively young. In general, the break-even point falls at about age 80 and 4 months when comparing lifetime benefits starting at 62 with a reduced benefit and starting at 70 with an increased benefit. For those who are currently ill and concerned they wont live to age 80, early benefits may sound like the right call.
But Weston cautions against this: Starting early is a common timing mistake, especially if you think you wont live beyond the break-even age where the larger checks for waiting more than offset the smaller checks you passed up. Westons concern about this strategy is if you outlive the break-even point and are stuck receiving a reduced benefit while also suffering from poor health. Most people dont understand how long theyre likely to live and the risks if they outlive their savings, Weston explains.Be sure to take careful stock of your financial and physical health when deciding when to start benefits.
What Insurance Do You Get With Social Security Disability
In most cases, people receiving Social Security Disability Income are automatically enrolled in Original Medicare after serving a 24-month waiting period.
The CMS waives this waiting period for people with ALS or end-stage renal disease. People with these conditions receive Medicare coverage as soon as they collect SSDI.
When To Apply For Social Security
As stated above, you are eligible to apply for Social Security retirement benefits when you are 61 and nine months. You can start collecting benefits as soon as you turn 62.
However, just because you can, does not mean that you should.
The longer you delay starting your benefits, the more your monthly income will be. In fact, the difference in lifetime income between starting at age 62 and waiting until your maximum retirement age can be more than $100,000 and for many people much much more.
While you can start benefits at age 62, the Social Security Administration considers that early. Depending on your birth year, you do not reach what the SSA calls full retirement age until sometime between ages 66 and 67.
- For every month prior to your full retirement age that you begin taking benefits, around 0.55% is deducted from your payout.
- And, for every year that you defer your benefits, you will receive a larger amount when you finally do begin drawing Social Security. The amount of the bonus is dependent, once more, on your birth date. For example, someone born in 1944 has a full retirement age of 66. If they start benefits at age 69, they will receive eight percent more benefits for each year they delay.
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You Need To Pay Down Debt
There are some debts you need to tackle before you retire. If you have high-interest debt, claiming Social Security early can help you pay the debt down. Depending on the interest rate youre paying, the 8% yearly boost to your benefits that you receive for each year you wait past full retirement age might not be worth the increased monthly benefit. Using the early benefits to reduce or eliminate your debt earlier could mean youll be able to keep more of your benefits in the future.
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Get Help From A Professional
In 2015, the government eliminated some Social Security planning strategies and loopholes that maximized benefits, but its still a good idea to ask a financial planner to assist with devising a strategy that fits a person or couples unique situation. The SSA is very technical in the way they explain things, says Mathews. You almost need a decoder ring to figure things out.
Reputable financial planners should also be able to accompany clients to the Social Security office if needed. There are a lot of little technicalities that can occur, says Julie Hall, director of financial planning for Planning Alternatives in Bloomfield Hills, Michigan. My colleagues and I have gone with clients to the Social Security Administration to make sure theyre speaking to someone knowledgeable. You want to make sure it gets done right.
To find a certified financial planner to assist with benefits strategies and retirement planning, visit www.letsmakeaplan.org. This website is maintained by the Certified Financial Planner Board of Standards , which sets rigorous ethical and professional requirements for financial-planner certification.
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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.
A quick note about life expectancy
Do You Have An Immediate Use For The Money
One of the most common reasons for taking Social Security early is simply because you need it. If your Social Security benefit is the only way you can keep the lights on, then its reasonable to file for it when you need it. However, its important to remember that working longer in your 60s to delay Social Security may be far easier than living on a reduced benefit in your 80s, especially if youre physically able to work now.
But what if you have no immediate use for the money but think you might be able to manage it better than Uncle Sam? Your Social Security benefit can feel like free money you can take now to grow into larger retirement income later. But Weston and Kate Horrell, an Accredited Financial Counselor and the founder of KateHorrell.com, dont see this as the optimal use of your Social Security benefit.
You may invest your Social Security income, but it does not count as earned income to be placed into an individual retirement account , Horrell points out. That means if Social Security is your only income, you may not be able to contribute to an IRA, and if it isnt, youll be limited to the lesser of $7,000, the IRA contribution limit for those over 50, or the amount you make outside of Social Security.
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What Happens If You Delay Past 70
If you don’t start your benefits once you reach 70, you can apply to receive up to six months’ worth of payments retroactively. But there’s no benefit in doing so. Delayed retirement credits stop once you reach 70, so you won’t get more money by holding out longer. Wait longer than six months and you’ve permanently forfeited those benefits you earned.
It’s important to note that your benefits won’t be affected if you’re still working, since you’re past full retirement age. In fact, working longer could even boost your future checks. Social Security calculates benefits based on your 35 highest-earning years. If you’re able to replace a lower-earning year with a higher-earning year, your benefit could increase since its calculated annually. But because you’ll be earning more money, more of your Social Security will be taxable.
How Much Can I Earn If I Work After My Full Retirement Age
If you continue to work after reaching full retirement age, you may work and earn as much as you’d like. You will not be subject to the retirement earnings test, and your Social Security benefits will not be affected.
If you work prior to FRA, you may forfeit part of your benefits if you earn above annual thresholds. However, your benefit amount will be recalculated at full retirement age to account for most of those forfeited funds.
How Does Full Retirement Age Affect Your Social Security Benefits
If you claim your benefits at full retirement age, you will receive your standard Social Security benefit amount. If you claim prior to FRA, you will be subject to early filing penalties that reduce your benefit by the following amounts:
- 5/9 of 1% for each of the first 36 months before FRA
- 5/12 of 1% for each subsequent month before FRA
This amounts to a 6.7% annual reduction for each of the first three years and an additional 5% reduction for each following year before FRA. If you claim benefits at 62 with an FRA of 67, you will face a full 30% reduction in benefits.
By contrast, if you claim benefits after FRA, you receive delayed retirement credits valued at 2/3 of 1% per month. This results in an 8% annual increase to your monthly benefit. Delayed retirement credits can be earned until age 70, after which time there is no financial benefit to delaying your claim. Delayed retirement credits cannot be earned if you are claiming either spousal or survivor benefits.
Tips For Figuring Out Your Full Retirement Age
Depending on your area of work, its likely that your employers retirement age and the Social Security Administrations full retirement age are different. The universal milestone used to be 65, but the government increased it beginning with people born in 1938 or later. The age gradually increases until it reaches 67 for individuals born after 1959.
For example, if you were born in 1955, the SSA says your full retirement age is 66 and two months. You would be able to retire from work and claim your benefits now at age 62, but you wont receive full benefits until you reach the SSAs specified retirement age.
This is important because someone born in 1955 who is eligible to receive $1,000 a month at full retirement age will only get $741 a month if they claim those benefits at age 62. Thats a 26 percent reduction just for collecting early.
Of course, some people just cant wait. Perhaps theyre in very poor health and unlikely to live long in retirement or they must collect these payments to survive and make ends meet.
If youre not sure what your full retirement age is, you can use this SSA calculator to help you figure it out.
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How Does Work Affect Social Security Benefits
You can receive Social Security benefits and work at the same timeyou can collect at age 62 whether youre working or not. However, if you collect benefits before your full retirement age, your benefits will be temporarily reduced by $1 for every $2 you earn above $18,960 per year in 2021. If you work during the year you reach full retirement age, $1 in benefits will be deducted for every $3 you earn above a higher limit , but only counting earnings before the month you reach your full retirement age.
Once you reach full retirement age, you can receive your benefits with no limit on your earnings. You are also paid back the earnings that were held while you were working.
Receiving Social Security Benefits Early
If you start receiving Social Security at age 62, your monthly benefits can be reduced by as much as 30%. Benefits increase each year as you approach full retirement age, at which point you will receive the full amount.
If you start Social Security after age 62 but before you reach your full retirement age, your benefits will still be reduced, but not as much. Social Security reduces your benefit by .56% for each month before your full retirement age for up to 36 months. If you retire more than 36 months before your full retirement age, you lose an additional .42% per month. The formula can be complicated, so the best way to know exactly what you’ll receive based on when you plan to retire is to visit the Social Security website and log into your account or call Social Security at 1-800-772-1213.
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Sign Up For An Ssa Account
Signing up for my Social Security account allows you secure access to your Social Security statement, earnings history, and estimated benefits. You can also use the account to check the status of a benefits application, request a replacement Social Security card, and manage benefits once you begin receiving them.
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Can You Get Social Security And Not Sign Up For Medicare
Yes, many people receive Social Security without signing up for Medicare.
Most people arent eligible for Medicare until they turn 65. As you can start collecting Social Security retirement benefits at 62, individuals may have Social Security without Medicare for several years.
Most people enroll in Part B once they turn 65, but you may decide to delay enrolling in Part B if you or your spouse has health insurance through an employer. Be sure to learn more about how Medicare enrollment works in your specific case, though. If you delay enrollment in Medicare Part B when youre first eligible and you dont have other creditable coverage, you could face late enrollment penalties for the rest of the time that you have Part B once you sign up.
As most people dont pay a premium for Part A, theres no reason to cancel the coverage, even if you dont think you need it. You are free to decline other Medicare plans, such as Parts B and D, though again you should make sure you wont cause yourself to go without coverage or have to pay late enrollment penalties in the future.
Working While Collecting Social Security Retirement
Many people choose or need, to keep working after claiming Social Security retirement benefits. However, if you continue work after claiming early retirement benefits your Social Security benefits may be reduced until you reach your full retirement age.
If you retire at age 62, Social Security will deduct money from your retirement check if you exceed a certain amount of earned income for the calendar year. For example, the income limit in 2018 was $17,040 or $1,420 per month. The income limit increases annually. Until you reach your full retirement age, Security will reduce your benefit by $1 for every $2 you earn over the income limit. Once you reach your full retirement age, you will receive your full Social Security retirement benefit with no limitation on how much income you earn from working.
The worse news is that Social Security does not apply the early retirement work penalty by simply deducting a small amount from each monthly benefit check. Instead, the agency may withhold several months entire checks until the total reduction is paid off. This means your annual budget will have to account for a certain number of months without a benefit check. Complete details on this decidedly complicated process can be found in Social Securitys pamphlet on How Work Affects Your Benefits. You can also use Social Securitys earnings test calculator to see how much your reduction will be and when your checks will be withheld.
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Do You Automatically Get Medicare With Social Security
Both federal initiatives are linked, meaning that many individuals receiving Social Security payments may automatically receive Medicare benefits once they qualify for Medicare based on age or disability.
In this article we review how people can receive Medicare health insurance coverage alongside their Social Security benefits.
Youre 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 2021, if you are under full retirement age, your benefits go down by $1 for every $2 your income exceeds $18,960. If you reach full retirement age in 2021, your benefits go down by $1 for every $3 your income exceeds $50,520 prior to reaching full retirement age. If youre working part-time to help make ends meet, taking Social Security at 62 might make sense.
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