Monday, May 16, 2022

When Should You Take Social Security Benefits

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How To Get A Social Security Card

Should you take your Social Security benefits at age 62?
  • Gather your documents. Learn what documents you’ll need to get a card. Select your situation:
  • Adult or child
  • Original, replacement, or corrected card
  • U.S. born citizen, foreign born U.S. citizen, or noncitizen
  • Apply online for a replacement card. Apply online if youre not changing anything on your card and you are eligible. This option is available in most states. You will need to make a my Social Security account first. Or complete an application. If you can not apply online, fill out an application and return it to the SSA. Find out where to take it in person or mail it.
  • 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

    How To Calculate The Break

    Its always good to use a numerical example to calculate when its best to take Social Security. Ill use myself as an example. Lets pretend Im single.

    The year is 2043, and I have reached full retirement age 66. Im deciding whether to begin collecting benefits now or to delay for one year.

    If I collect now, Ill receive $2,800 per month. But if I wait one year, my benefit increases by 8% each year until age 70. In other words, if I wait one year, Ill receive an additional $224 a month in Social Security benefits. If I decide to wait a year to collect, how long would it take me to break even?

    By delaying one year, Im forfeiting $33,600 , but gain $224 a month. To find out my break-even age, I would divide $33,600 by $224 a month, which comes out to 150 months or 12.5 years. In other words, if I wait one year, it will take me 12.5 years to break even. The math 12.5 years to break even for you too if you wait a year.

    12.5 years is a damn long time to wait at an already advanced age to break even. I would have to confidently believe I will live past 78.5 years old to break even. If I was in average-to-good health, its likely a safe bet to delay. For example, lets say I live until 96. Then I would come out ahead by $47,040 X 12 X $224).

    To delay taking Social Security for two years until age 68 is likely the most I would delay. My break even point would be a little more than 13.5 years, or 79.5.

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    Working While Receiving Benefits

    You may work after you start receiving benefits, which could mean a higher benefit for you in the future. We may withhold some of your benefits if you earn more than the yearly earnings limit. Sometimes people who retire in mid-year already have earned more than the annual earnings limit. However:

    • We have a special rule that applies to earnings for one year, usually the first year you begin receiving benefits. This means we cannot withhold benefits for any month we consider you retired, regardless of your yearly earnings.
    • After you reach full retirement age, we will recalculate your benefit amount to take into account any months you did not receive benefits because your earnings were too high.

    Can I Collect My Retirementbenefits Early

    Should You Take Social Security Benefits Early?

    You can start collecting Social Security as early as age 62 but theres a catch. If you collect before you reach your full retirement age , youll receive a lower monthly payment permanently. For example, if your FRA is 67, but you begin to claim benefits at 62, youre signing up to get 30% less. However, this reduction will decrease for each month you wait after age 62, up until your FRA. Think of your FRA as your break-even point.

    Age to receive full Social Security benefits2

    Year born

    65 + 2 months for every year after 1937

    1943-1954

    66 + 2 months for every year after 1954

    1960 +

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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.

    How Will My Retirement Benefits Be Taxed

    Approximately one-third of people who collect Social Security benefits are required to pay income taxes on these benefits. Individuals with higher total incomes must include up to 85% of their benefits as income for federal income tax purposes, designated by special step-rate thresholds. However, the taxation thresholds for your benefits arent currently indexed for inflation.

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    What Happens If You Claim After Your Fra

    If you wait until your age 70 to start claiming benefits, then youll get an extra 8% per yearor, in total, 132% of your primary insurance amount for the rest of your life. Claiming after you turn 70 doesnt increase your benefits further, so theres no reason to wait longer than that.

    The longer you can afford to wait after age 62 , the larger your monthly benefit will be. Nevertheless, delaying benefits doesnt necessarily mean that youll come out ahead overall. Other factors should be considered, including your expected longevity and whether you plan to file for spousal benefits. You should also consider the tax, investment opportunity, and health coverage implications.

    Why You Can Trust Bankrate

    Clark’s Take on Delaying Your Social Security Benefit

    Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

    Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

    Our reporters and editors focus on the points consumers care about most how to save for retirement, understanding the types of accounts, how to choose investments and more so you can feel confident when planning for your future.

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    Get Life Insurance Before Its Too Late

    One of the most striking things Ive discovered during the pandemic is this chart below. It shows a huge drop off in the pace of retirees collecting Social Security in 2020 and 2021. One would think that with millions of people losing their jobs, more people would have collected, not less.

    However, the sad reality is that most of the COVID-19 deaths occurred in people over 65. As a result, the pace of retirees collecting SS declined. Can you imagine waiting until full retirement age to collect only to die a year before?

    The pandemic has made us appreciate life more. Therefore, we should do more to insure our lives. I recommend getting a tailored, no-obligation quotes from PolicyGenius.

    PolicyGenius enabled my wife to double her life insurance coverage for less money during the pandemic. As co-parents with equal business responsibilities, it only made sense to get equal life insurance coverage.

    Readers, when do you think is the best age to take Social Security? How do you incorporate Social Security as part of your retirement plan? Do you think the government will raise the full retirement age or cut benefits soon? When did you take Social Security and why?

    Note: For 2021, the maximum Social Security benefit is $3,148 a month for an individual who claims at full retirement age. The maximum benefit if claimed at age 70 is $3,895 in 2021.These figures will likely go up between 1-2% each year to keep up with inflation.

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    Your Social Security Retirement Options: Early Full And Late Retirement

    You may opt to receive benefits early , at full retirement age, or after full retirement age. Your full retirement age varies between 66 and 67 depending on when you were born.

    If you claim benefits before full retirement age. Almost 40% of retirees claim benefits as soon as they turn 62 . If you claim early retirement, you’ll receive up to 25% less than you would have if you’d waited until full retirement age .

    If you claim benefits at full retirement age. Although claiming at full retirement age entitles you to “full” retirement benefits, you’re actually given an incentive to wait even longer, as described next.

    If you claim benefits after full retirement age. From your full retirement age until you reach age 70, the Social Security Administration will increase your benefits by 8% per year.

    Let’s see how this plays out. Imagine that you’d receive $21,180 annually if you retired at your full retirement age . If you retired early, at age 62, you’d receive only about $15,885 in Social Security annually from retirement until the end of your life. If you waited to retire until age 70, you’d receive about $28,000 annually, an 87% increase in monthly payments over claiming them at age 62.

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    Your Monthly Social Security Benefits Increase The Longer You Wait To Claim

    You can collect Social Security benefits as soon as you turn 62, but taking benefits before your full retirement age means a permanent reduction in your payments of as much as 25% to 30%, depending on your full retirement age.

    If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. But you can also get a big bonus by waiting to claim your Social Security benefits at age 70 your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.

    Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.

    Taking Social Security: How To Benefit By Waiting

    When Should You Take Social Security Benefits?

    For those who are able to do so, it may make sense to wait even longer, because youll receive a larger monthly benefit even more than your full benefit. Every month past your full retirement that you delay, Social Security will increase your check by about 0.7 percent per month.

    If your full retirement age is 66, then heres how much your check would increase:

    Retirement ageNew benefit A $1,000 check becomes
    $1,320

    So if your full retirement age is 66, then if you can wait two more years and claim benefits at age 68, youll increase your monthly check by 16 percent. In this case, if your full benefit were $1,000 a month, your new benefit would become $1,160 per month. And youll still receive cost of living adjustments on top of this amount, typically raising your payout a little each year.

    Workers have other ways to grow their Social Security benefits, too, but its important to start early.

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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

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    How Do I Qualify For Social Security Retirement Benefits

    When you work and pay taxes, you earn credits toward Social Security retirement benefits. These credits are based on your annual earnings you can accrue a maximum of four credits per year. Once youve acquired 40 credits , youre fully insured and eligible to receive retirement benefits.

    Your paychecks will withhold Federal Insurance Contributions Act tax until youve earned up to the taxable earnings base for the year.

    Critical Concepts To Understand If You Wantto Determine If You Should Take Retroactive Social Security Benefits

    When should you take Social Security benefits?

    First, its important to understand two key concepts:

  • Your full retirement age and the increases for every month beyond your full retirement age.
  • The next thing to know is that a lump sum retirement benefit can only be paid to individuals who have reached full retirement age.
  • When it comes to the first and understanding your retirementage, this is important because without knowing this information, you wont getfar in doing the math to see if a lump sum makes sense for you.

    Heres what to know:

    First, your full retirement age is dependent on your year ofbirth. Its 66 for anyone born between 1943 and 1954 and you simply add twomonths for every year up to 1960 where the full retirement age is 67.

    For every month you delay beyond your full retirement age,your benefit is increased by 2/3 of 1%. That works out to .667% per month. You must know and understand thisinformation before proceeding any further!

    The next critical concept to understand is that the SocialSecurity Administration rules state that anyone who files for retirementbenefits after full retirement age can be paid up to 6 months of retroactivebenefits but in no case can you ever receive payments for months that occurredbefore your full retirement age.

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    Fact #: Social Security Provides A Foundation Of Retirement Protection For Nearly Every American And Its Benefits Are Not Means

    97% of the elderly either receive Social Security or will receive it.

    Almost all workers participate in Social Security by making payroll tax contributions, and almost all elderly Americans receive Social Security benefits. In fact, 97 percent of the elderly either receive Social Security or will receive it, according to Social Security Administration estimates. The near-universality of Social Security brings many important advantages.

    Social Security provides a foundation of retirement protection for people at all earnings levels. It encourages private pensions and personal saving because it isnt means-tested in other words, it doesnt reduce or deny benefits to people whose income or assets exceed a certain level. Social Security provides a higher annual payout than private retirement annuities per dollar contributed because its risk pool is not limited to those who expect to live a long time, no funds leak out in lump-sum payments or bequests, and its administrative costs are much lower.

    Indeed, universal participation and the absence of means-testing make Social Security very efficient to administer. Administrative costs amount to only 0.6 percent of annual benefits, far below the percentages for private retirement annuities. Means-testing Social Security would impose significant reporting and processing burdens on both recipients and administrators, undercutting many of those advantages while yielding little savings.

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