You Cant Work Anymore
Even the best retirement financial plans and projections can go awry. For example, you might have planned on working until youre 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 isnt worth continuing to work. In this case, the healthier lifestyle youll get by retiring early could outweigh the smaller monthly Social Security benefit.
You Have A Shorter Life Expectancy
The government incentivizes waiting to collect your Social Security benefits by giving you a larger monthly amount the longer you delay. For example, if you start collecting benefits at age 62 when your full retirement age is 66, your monthly benefit will be about 75% of your full-age benefit. So if you expected your monthly benefit to be $1,000 per month at 66, you would only receive around $750 at 62.
Although a larger monthly benefit might sound great, keep in mind that youd have to wait four years to get that extra $250 per month. You would receive $36,000 during those four years at the reduced amount of $750 per month.
When you start collecting $1,000 at age 66, that extra $250 per month wont let you break even for 12 years compared to collecting early. If your health is declining and you dont expect to live until youre 78, youll receive more in benefits during your lifetime if you start claiming as soon as possible.
How Age Affects Your Social Security Benefit
The longer you wait to take benefits, the higher your monthly benefit will be, with 70 as the maximum age to delay benefits. So, deciding when to take your benefit is a trade-off between a lower benefit for a longer period of time versus a higher benefit for a shorter period of time.
Heres how it works:
Youre first eligible to start taking benefits at age 62, but at a reduced amount. Your benefit is reduced a little bit each month that you take it early, I wont get into the exact calculation here, but if you take your benefits at 62, the amount is reduced by 30% of your PIA if your full retirement age is 67.
So if you were eligible to receive $2,156, then at 62 your benefit would be $1,509. Ouch. But you do get benefits from age 6267, where they would have paid you zero during that time if you waited until 67 to start. But now that youve filed early, your benefits are reduced permanently through the rest of your life.
So theres a trade-off between applying early and applying late.
There is also an increased benefit for delaying after age 67. For each year from age 67 to 70, you get an increase in your benefit of 8% per year. So, if you wait until age 70 to start your benefits, and your benefit was $2,156, then your age 70 benefit is $2,673. Not bad.
Summary of how age affects your Social Security benefit:
- Full benefit at your full retirement age
- 30% reduction at age 62
- 32% increase on full benefit at age 70
Heres a chart showing how age affects benefit:
|Apply at age|
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No One Else Is Relying On Your Benefits
In the event of your death, a surviving spouse, minor or disabled child can receive money from the Social Security Administration based on the amount of your benefits. For example, a surviving spouse can receive between 71.5% and 100% of your benefit amount, depending on the surviving spouses age. A disabled child can receive 75% of your benefits each month even after youre gone.
If no one else can qualify for benefits based on your record, you might want to retire early because no one is depending on that money. If everything else falls into place and you meet the minimum Social Security retirement age, consider collecting your benefits early and enjoying life.
Will Social Security Be There When You Retire
Some people dont want to delay their benefit because they fear Social Security will run out of money.
The reports of Social Security running out of money, have often been exaggerated. The situation is not as bad as it seems, and Social Security will most likely be there when you retire. At worst, it may pay 78% of benefits.
Social Security releases a report each year on the trust fund called the OASDI Trustees Report. The most recent projections are that the trust fund will be depleted between 2031 and 2034 . The trust fund is declining because theres more money paying benefits than there is paying Social Security taxes.
But its important to remember that Social Security was built to be a pay as you go program, it wasnt meant to build up a trust fund.
The baby boomer generation was bigger than previous generations, and so when they entered the workforce there were more people paying into Social Security than people receiving benefits. This created a surplus. The government took that surplus and bought bonds with it which became the trust fund. Now that boomers are retiring, the situation is in reverse. There are more people receiving benefits than paying in, so the trust fund is getting drawn down.
Still, there are about ten years before the fund is projected to run out. That gives congress plenty of time to make adjustmentsand knowing our governmentwe can assume theyll use as much time as they can.
You Want To Start A Business
Some people think of retirement as a time to relax, but you might see it as an opportunity to do things you couldnt do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldnt be generating enough income. Social Security benefits could provide enough income to let you launch your business. And if your business is successful, the income it generates could be more than enough to offset the future reduction in benefits.
Your Options: Working Applying For Retirement Benefits Or Both
Choosing when to start receiving your Social Security retirement benefits is an important decision. Theres no one choice that works for everyone because your lifestyle, finances, and goals are not the same as others.
Do you want to retire early, stay on the job, or work beyond retirement age?
Should you start receiving retirement benefits now, or wait until you can receive a higher benefit amount?
These are important questions youll need to answer as you plan for your retirement. Consider the four options below to help you make the best decision.
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What If I Change My Mind
If you receive Social Security benefits at a reduced rate, but then change your mind, you have the option of withdrawing your application and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. But you are limited to one withdrawal per lifetime.
For example, let’s say you elected to receive early benefits at age 62, but then decided to go back to work at age 63. You could withdraw your Social Security application within the first 12 months of receiving benefits, pay back the years’ worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.
For important details about repaying benefits please read the SSA publication If You Change Your Mind.
What If I Take Benefits Early
If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.
If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.
For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and 2 months you elect to start benefits at age 62, the reduced benefit calculation is based on 50 months. This means that the reduction for the first 36 months is 20% and 5.83% for the remaining 14 months. Overall, your benefits would be permanently reduced by 25.83%.
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Social Security And Women
Social Security is vitally important for all Americans, but it’s especially critical to the financial security of women. Here are just some of the reasons why:
Women earn less than menWomen who work full-time earn only about 81 cents for every dollar earned by men. They’re also more likely than men to have low-wage and part-time jobs. Earning less not only means saving less but also putting less into Social Security, which translates into a smaller benefit.
Women are in and out of the workforce more than menThe typical woman is in the workforce for 32 years the typical man, 44 years. That’s mostly because women are more likely than men to take time out of the workforce for caregiving, such as raising children or taking care of elderly parents. They’re hurt by years with no earnings, which results in a smaller retirement benefit.
Women are less likely than men to have pensions and other retirement plansOnly 22 percent of retired women receive income from pensions compared with 28 percent of men. Moreover, the average pension benefit for women is only 64 percent of the average benefit for men. Also, women are more than twice as likely as men to work part-time and are more likely to change jobs. This leaves them less likely to be able to qualify for employer-sponsored pension, 401 and other retirement plans.
Dont Rush Into A Decision
There are at least 2 broad schools of thought on the subject of spending retirement savings early in retirement to delay claiming Social Security.
- Delay Social Security only as long as you can avoid dipping into investment principal. That means working to supplement income or living off of investment income or a combination of both strategies.
- Consider delaying retirement until age 70 as if purchasing an annuity from the government. This could mean working, but also spending some retirement savings to make it to age 70 before filing for Social Security.
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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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When A Spouse Dies
When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouses benefit. Thats why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, then the surviving, lower-earning spouse will receive a larger Social Security check for life.
When the surviving spouse hasnt reached their FRA, they will be entitled to prorated amounts starting at age 60. Once at their FRA, the surviving spouse is entitled to 100% of the deceased spouses benefit or their own benefit, whichever is higher.
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The next thing to know is that the SSA wont automatically start sending you checks once you turn 70. You need to apply for benefits. You can do this starting four months before the date that you want your benefits to begin. To get the maximum amount, youll want the benefits to start the month you turn 70. There is, however, one scenario where benefits will automatically kick in at 70: those who took benefits after reaching their full retirement age and then suspended their benefits to earn delayed credits until age 70. For them, the SSA should automatically restart benefits at 70.
You can apply online — . If you cant submit your application online, you can call 1-800-772-1213 . In normal times, another alternative is to visit your local Social Security office, but during the pandemic visits are by appointment only and only for a limited number of reasons. However, SSA offices should be reopening soon check the SSAs Coronavirus Disease page for updates. The SSA will want certain information and documents when you apply. For a checklist of what may be required, .
What If Youre Still Working?
For the SSA’s Retirement Benefits page, .
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When Can I Retire When Can I Take Social Security
Obviously, people want the option to retire as soon as they likethe earliest age generally being 62. But the decision to take Social Security retirement benefits can be complicated by your health, your marital status and your spouses Social Security plan.
One of the key factors is the year you were born, as when you were born will determine your Full Retirement Age For people born between 1943 and 1954, for example, Full Retirement Age is 66. As shown below, the Full Retirement Age creeps up by two months for every year between 1955 and 1960. Everyone born after 1960 currently has a Full Retirement Age of 67.
Full retirement age doesnt tell the full picture. As we will explain in this piece, retirement at each age has benefits and drawbacks.
Tax Considerations For Social Security Benefits
How do these tax considerations affect when you should apply for Social Security benefits? At todays , they may not have much of an impact on most people. Still, tax rates and income thresholds can change, so its worth remembering that you will lose less of your Social Security to taxes if you are in a lower marginal tax bracket when you begin to collect.
You should also note that if you decide to return to work, even part-time, and arent yet at your FRA, your Social Security benefits may be temporarily reduced. The reduction is $1 for every $2 of earned income over $18,960 in 2021 . During the year when you reach your FRA, your benefits will be reduced by $1 for every $3 in income over $50,520 in 2021 until the month when you become fully eligible. That money isnt lost, however. The SSA will credit it to your record when you reach your FRA, resulting in a higher benefit.
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Claiming Social Security At Age 70
If you are able to delay claiming your Social Security benefit until you reach age 70, you will earn a significantly higher benefit. After your Full Retirement Age of 66 , your benefit goes up by eight percent each year. Consequently, if your full retirement benefit at age 66 was $1,000 per month, and you delay claiming your benefit, it will be $1,080 per month by age 67 or an additional $960 per year. If you delay until age 70, it will be 124 percent of your expected benefit or $1,240 a month. That comes out to $2,880 more each year.
Delaying past age 70 will not increase your benefit, however.
Spouses And Social Security
You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is up to 35% while the reduction for claiming your own benefit is up to 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.
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Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be up to 30% less for the remainder of their lifetime.
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