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When Is The Best Age To Collect Social Security

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Social Security: What Is The Best Age To Begin Collecting

When Can I Retire and Collect Social Security? What’s The Best Age?

Have you ever wondered how the FICA tax information on your pay stub impacts your future retirement benefits?

FICA is a payroll tax that funds both Social Security and Medicare, amounting to a 7.65 percent contribution from each paycheck, an amount which your employer matches. It gets deducted from your first paycheck all the way up to the time you retire, when you can collect benefits.

But claiming Social Security benefits can be a tricky business.

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Youll be taken through a questionnaire. And, yes, it does take a few minutes. But thats time well spent on a decision that could make you thousands of dollars.

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You deserve a comfortable retirement.

, our weekly newsletter dedicated to people 50 years and older. Each issue features financial topics and other issues important to the 50+ crowd that can help you plan for a comfortable retirement even if you haven’t saved enough.

Subscribers get The After 50 Finances Pre-Retirement Checklist for FREE!

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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Before You Make Your Decision

There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:

  • If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
  • That there are other things to consider when making the decision about when to begin receiving your retirement benefits.

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Social Security: Aiming For Smarter Payments

Social Security Isn

Delaying your benefits for as long as you can could give you greater income for life. But is it the right move for you? These insights can help.

Even for Americans who have invested diligently for retirement over the years, Social Security benefits matter. One of the first big decisions weâre faced with as we approach retirement is when to claim our benefits â and timing is important. While you can start as early as age 62, waiting a few years or until you reach your full retirement age can substantially increase the amount you receive over your lifetime.

We recently sat down with Ben Storey, director of Retirement Thought Leadership at Bank of America to get the latest thinking on what’s important to consider as you make your decision.

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The 10 Factorsto Consider To Determine When You Should File For Social Security Benefits

When youre making the decisionabout when to file , there are atleast 10 factors that you need to consider to get to the right answer. All ofthese factors are very important to account for but there can be disastrousconsequences for ignoring the last two in particular.

Factor1: Whats Your Gender?

Your decision about when to collect SocialSecurity begins with your gender. The decision to delay or not is moreimportant for women than it is for men. There are two reasons for this:

  • Women live longer than men.
  • On average, Social Security makes up a greater percentage of a womans retirement income .
  • The decision to file later and get ahigher benefit is possibly more important for a woman to consider. According todata from the Social Security Administration, men usually have a higher benefitamount than the women theyre married to.

    If thats your case, you need to exercisecaution filing based on the impact your benefit will have to your wife .

    Factor 2: What Does Your Marital History Look Like?

    Next, consider your marital history. If you had prior marriages, figure out if you areeligible for benefits from any of those past marriages that could boost yourown benefit.

    For example, if you have aneligible deceased spouse or ex-spouse, it could make sense to file for asurvivors benefit as early as age 60 and switch to your own benefit later.

    If you have an ex-spousewho is still living you need to figure out if you are entitled to a higherbenefit from the spousal provisions

    Watch Out For Hidden Costs

    Youll also want to consider other lifestyle factors, especially Medicare. Americans become eligible for federal health insurance coverage at age 65, well after when you can begin to file for Social Security.

    If you stop working at age 62 and lose health insurance, you have to get supplemental insurance to bridge the gap until you turn 65 and Medicare kicks in, Neiser says.

    If you work during retirement, you have another incentive to delay collecting Social Security. Earning too much at a job after you begin collecting your benefit can reduce your payout, but only if you have yet to hit full retirement age.

    However, when you hit full retirement age, your benefit will increase to account for any benefit that was withheld earlier due to working. Heres how much you can earn and not get hit.

    If youre younger than full retirement age for all of 2021, the Social Security Administration will deduct $1 of your monthly check for every $2 you earn above $18,960 per year.

    If you reach full retirement age in 2021, the administration deducts $1 of your monthly check for every $3 you earn above $50,520 until the month you reach retirement age.

    Youll also owe Social Security and Medicare tax on your earnings, even if youre already receiving benefits.

    So those are some potential pitfalls to claiming Social Security early.

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    Factors To Consider When Deciding On Age For Social Security

    Some of the most important considerations anyone should take into account are below. However low income families should put even more emphasis on this decision. As they more than likely will depend even more so on the retirement income from their social security benefits.

    Life expectancy. If you are and have been in reasonably good health, it makes sense to assume you will have a long life. The average life expectancy for people now turning 65 is just over 84 years for men and nearly 87 for women. While of course no one knows for sure, but if you think you will meet or beat the average life expectancy, the wiser decision would be to wait as long as possible before collecting benefits. Maybe the life expectancy in your family runs on the long side and you have been in great health prior to your 60s, such as exercise, do not smoke, can stay at a healthy weight, etc.

    Many people who fall short of the average life expectancy will still collect a higher lifetime benefit amount by delaying benefits until age 70. If you begin taking benefits at age 70, within about six years, you will have accumulated the same dollar amount in benefits you would have received by starting at age 62. If you expect to live beyond age 76, delaying benefits until 70 makes financial sense.

    Generally, the older you get, the fewer options are available to increase income. Especially if you are not in good health. Accepting benefits too early may create financial hardship more quickly.

    How Should I Decide When To Take Benefits

    Best age to collect Social Security. Should I collect now or later?

    Consider the following factors as you decide when to take Social Security.

    Your cash needs: If youre contemplating early retirement and you have sufficient resources , you can be flexible about when to take Social Security benefits.

    If youll 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 youll 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 youll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if youre in poor health or have reason to believe you wont beat the average life expectancy, you might decide to take what you can while you can.

    A quick note about life expectancy

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    The Next Best Age To Claim

    Single Social Security claimants who want to hold off until age 70, but find they cant quite wait any longer should select age 69 for the best trade off, Jones said.

    That sacrifice may be as little as a few thousand extra dollars in additional lifetime benefits in exchange for starting a year earlier, according to Jones.

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    If youre single, well tell you you should wait until 70, Jones said. It is generally preferable to do so. But its not quite as critical as it is going from 66 to 67, or 67 to 68.

    If youre approaching your late 60s, the decision as to when to start your benefits comes down to one key question: how long you expect to live, said Jason Scott, managing director of JS Consulting, who has researched this and other topics on Social Security.

    If youre employed and thinking about these things, youre probably healthier than average, Scott said. If youre not and youre delaying it and trying to maximize the benefit, maybe youre more average. There are pretty strong clues as to whether youre above average in terms of life expectancy.

    In addition to employment, look to your parents health, your income and your health history. Individuals who are in the top quartile for income tend to live longer, Scott said. Bad health habits, such as smoking, have the opposite effect.

    There might be some hints as to these kinds of things that people may not realize are strong signals of good health relative to average, Scott said.

    You Need More Money In The Early Retirement Years

    In the first stage of retirement, many people are healthy, have a lot of energy, and spend more money on hobbies, travel, and other entertainment. As a result, many newbie retirees need increased cash flow during the earlier years of retirementand less as they get older.

    If you fall into this category and want to boost your cash flow now, early Social Security benefits could help. Sure, you’ll have a lower payout than if you waited. But if enjoying your retirement while you’re healthiest is more important than collecting a larger Social Security check later, it makes sense to start early.

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    Spouses Who Dont Qualify For Their Own Social Security

    Spouses who didnt work at a paid job or didnt earn enough credits to qualify for Social Security on their own are eligible to receive benefits starting at age 62 based on their spouses record. As with claiming benefits on your own record, your spousal benefit will be reduced if you take it before reaching your FRA. The highest spousal benefit that you can receive is half of the benefit that your spouse is entitled to at their FRA.

    While spouses get a lower benefit if they claim before reaching their own FRA, they will not get a larger spousal benefit by waiting to claim after their FRAsay, at age 70. However, a nonworking or lower-earning spouse may get a larger spousal benefit if the working spouse has some late-career, high-earning years that boost their benefits.

    The Best Age For Social Security Retirement Benefits

    When Can I Retire and Collect Social Security? What

    As you get older, you start thinking more about retirement distributions than contributions. One of the biggest questions that near-retirees have is, What is the best age to start collecting Social Security benefits? Most take the benefits right away, but that isnt always the best option. A financial advisor can help you optimize a plan for your retirement needs. You can start collecting Social Security benefits any time between ages 62 and 70. Lets take a look at how Social Security works, and what you need to know when deciding the best age for your retirement.

    The best age for Social Security benefits depends on personal and financial factors, like your current cash needs, retirement plans, health and family history. Be sure you weigh the decision carefully and dont hesitate to find a financial advisor to talk to if need be. The age you choose to start taking Social Security will affect the monthly amount you receive for the rest of your life.

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    Waiting Works For Most People But There’s Still No Perfect Claiming Guideline

    According to the data provided, a majority of seniors would be more financially secure, in terms of boosting their lifetime earning potential from Social Security, by waiting to take their benefit.

    Unfortunately, no one knows if they’re going to be in the majority. Sure, 57% of seniors should net more from the program by claiming at age 70, but this also suggests that an earlier claim would work for 43% of analyzed workers in the HRS. We’ll never know with any certainty if we’ve made the best possible choice until many years after the fact.

    So, what can you do to ensure you get the most out of Social Security? The best suggestion I can pass along is take the time to . Though none of us knows our expiration date, we can use our health history, and that of our immediate family members, to formulate ideas on our longevity that can aid our claiming strategy.

    Likewise, examine your financial situation. If you’re nearing retirement age but don’t have much saved for retirement, then consider working longer and allowing your payout to grow over time.

    Also, take your marital status into account. If you’re a single individual, then your claiming decision will affect you and you alone. However, if you’re married, your claiming decision could impact your spouse’s ability to collect a larger survivor benefit if you were to pass away first. This is especially important if you’re the household earnings breadwinner.

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    You Could Help Keep Your Tax Bill Lower

    Many people dont realize that they could end up paying federal income taxes on as much as 85% of their Social Security benefits.

    If you file a federal tax return as an individual and your provisional income is between $25,000 and $34,000, then up to 50% of your benefits may be federally taxable as earned income. If your provisional income is more than $34,000, you may have to pay federal income taxes on up to 85% of your Social Security benefits.

    If you file a joint return and you and your spouse have a provisional income between $32,000 and $44,000, up to 50% of your Social Security benefits could be taxed. If your provisional income with your spouse is more than $44,000, up to 85% of your Social Security benefits may be taxable.

    If you dont have much taxable income in retirement, you may not have to pay any federal taxes on your Social Security benefits. But if youre like many Baby Boomers you may have a hefty amount of your retirement savings in tax-deferred IRAs or 401s and the federal income taxes on those savings could be substantial.

    To help with that, you may be able to take distributions from your tax-deferred accounts , etc.) now, and perform some Roth conversions, and/or perhaps conversions to other vehicles that can provide you with tax-free income, such as life insurance, so that Social Security benefits later may not be taxed at all by the federal government.

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