What To Consider When Deciding The Best Age For Social Security Benefits
Youll receive reduced monthly benefits permanently if you start taking them before you reach full retirement age. And the reductions arent small. This breakdown summarizes how much you can lose depending on when you get your retirement benefits:
- Benefits are reduced by 30% if you opt to start receiving benefits just five years early.
- If you wait until you full retirement age youll receive 100% of your benefits.
- You can also elect to postpone benefits beyond full retirement age, up until you are 70.
- The monthly amount you will receive in the future increases each month you wait to start receiving benefits.
- If you can wait until the last possible month, your check will be 132% of the full retirement benefit.
For a fuller comparison, this table from the Social Security Administration shows how much you could get if you retire at age 62 based on your birth year:
|Social Security Administration Early Retirement at Age 62|
So, its almost always best to delay Social Security benefits for as long as you can. If you plan to work in retirement, youll definitely want to delay. Youll face a penalty if you continue to work after you claim early retirement benefits and earn more than the yearly earnings limit, which for 2020 is $18,960. This means that the Social Security Administration will deduct $1 from benefits for every $2 that you earned over $18,960.
C You Can Continue Working And Not Receive Your Retirement Benefits
If you decide to continue working and not start your benefits until after full retirement age, your benefits will increase for each month you do not receive them until you reach age 70. There is no incentive to delay filing for your benefits after age 70. Continuing to work may also increase your benefits, because your current earnings could replace an earlier year of lower or no earnings, which can result in a higher benefit amount.
If you are not receiving your Social Security benefits when you turn 65, you will need to apply for Original Medicare three months before you turn 65. If you dont sign up for Medicare Part B when youre first eligible at age 65, you may have to pay a late enrollment penalty for as long as you have Medicare coverage.
However, if you or your spouse are still working and covered under an employer-provided group health plan, talk to your personnel office before signing up for Medicare Part B. Once the covered employment ends, you may be eligible for a Special Enrollment Period to sign up for Part B. If so, you wont have to pay a late enrollment penalty.
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.
Also Check: Social Serurity
Change In How You Report Earnings
The Social Security Administration bases its benefit calculations on earnings reported on W-2 forms and on self-employment tax payments. Most individuals are not required to send in an estimate of earnings.
However, the Social Security Administration does request earnings estimates from some recipients: those with substantial self-employment income or those whose reported earnings have varied widely from month to month, including people who work on commission. Toward the end of each year, Social Security sends those people a form asking for an earnings estimate for the following year. The agency uses the information to calculate benefits for the first months of the following year. It will then adjust the amounts, if necessary, after it receives actual W-2 or self-employment tax information in the current year.
Once a beneficiary reaches full retirement age, his or her income will no longer be checked. Because there is no Social Security limit on how much a person can earn after reaching full retirement age, there is nothing to report.
The Average Retiree Takes Years To Make Up For Missed Social Security Payments
You become eligible for Social Security benefits as early as age 62, but retirees are often encouraged to wait to claim benefits because early filing reduces monthly income.
Every retiree is entitled to a standard benefit based on their work history, but they get this amount only if they start payments at their designated full retirement age. A claim before that will lead to smaller monthly payments but more checks over time. A claim after it will result in the reverse, with retirees getting fewer payments, but larger ones, over time.
If you’re going to delay a benefits claim, you’ll be trading money you could get now in exchange for higher payments years into the future. That’s why it is so important to do the math and figure out how many of those higher payments must come your way to make up for income missed. In many cases, you’ll find it takes a surprisingly long time for big future checks to make up for all the income you passed up.
In 2022, for example, the average Social Security benefit is $1,661. If your full retirement age is 67, which is the case for anyone born in 1960 or later, you will shrink your check by 30% if you claim it at 62 instead of at FRA. As a result, an average benefit of $1,661 would fall to around $1,163 per month if you claimed at 62 instead of 67. By contrast, the $1,661 average benefit would increase to around $2,060 monthly if claimed at age 70 instead of 67.
You May Like: How Much Social Security Am I Entitled To
What Is The Future Of Social Security
Social Security is expected to run out of cash reserves in 2034, according to the Old-Age and Survivors Insurance Trust Fund, the retirement benefits account managed by the Social Security Administration.
However, this doesnt mean the program would be bankrupt and unable to pay out benefits. If Congress does nothing to reform the system by 2034, Social Security would still be able to pay 79 percent of promised benefits until 2090.
Social Security has run out of cash reserves before. Congress reformed the program in the 1980s by taxing benefits based on income levels and by gradually increasing the full retirement age from 65 to 67.
How To Calculate Social Security Benefits
Lets say your FRA is 66. If you start claiming benefits at age 66 and your full monthly benefit is $2,000, then youll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, then your benefit will be reduced to 75% of your full monthly benefitalso called your primary insurance amount. In other words, youll get 25% less per month, and your check will be $1,500.
That reduced benefit wont increase once you reach age 66. Rather, youll continue to receive it for the rest of your life. It may go up over time due to cost-of-living adjustments , but only slightly. You can do the math for your own situation using the Social Security Administration Early or Late Retirement Calculator, one of a number of benefit calculators provided by the SSA that can also help you determine your FRA, the SSAs estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, individualized projections of your benefits based on your personal work record, and more.
Although the cost-of-living adjustments announced each year are usually only slight increases, Social Security benefits will increase by 5.9% in 2022, marking the largest increase since 1982.
Recommended Reading: Get Social Security Early
Should I Wait Until Full Retirement Age To Apply For Social Security
Receiving Social Security at age 62 means that you will receive a reduced payment compared with waiting for full retirement age. For those born in 1960 or later, the reduction is 30%, and all reductions are permanent. If you delay taking your benefits past full retirement age, then you receive an 8% increase for each full year that you do so, up until you reach 70, at which point the increases stop.
Every individual can calculate their own full retirement age based on their specific birthday, to consider locking in the maximum amount of Social Security benefits.
An Example Of Taxed Benefits
Lets say you receive the maximum Social Security benefit for a worker retiring at FRA in 2021: $3,148 per month. Your spouse receives half as much, or $1,574 a month. Together, you receive $4,722 a month, or $56,664 per year. Half of that, or $28,332, counts toward your combined income for determining whether you have to pay tax on part of your Social Security benefits. Lets further assume that you dont have any nontaxable interest, wages, or other income except for your traditional individual retirement accounts required minimum distribution of $10,000 for the year.
Your combined income would be $38,332half of your Social Security income, plus your IRA distributionwhich would make up to 50% of your Social Security benefits taxable because youve exceeded the $32,000 threshold. Now, you may be thinking, 50% of $56,664 is $28,332, and Im in the 12% tax bracket, so the tax on my Social Security benefits will be $3,399.84.
Fortunately, the calculation takes other factors into account, and your tax would be a mere $225. You can read all about the taxation of Social Security benefits in the Internal Revenue Service Publication 915.
Also Check: What Years Are Used To Calculate Social Security
Applying For Social Security Retirement Income
- 01 July 2022
This is a decision that requires thought and planning. Taking benefits early means getting a reduced payment. Delaying benefits until age 70 will result in a larger monthly payment. There are pros and cons to either option. You need to consider multiple factors before making a decision.
First: you need to know your full retirement age. Born in the year Full retirement age 1943-1954 66 1955 66 and 2 months 1956 66 and 4 month 1957 66 and 6 months 1958 66 and 8 months 1959 66 and 10 months 1960 or later 67
Once you know your full retirement age, you can consider other factors, such as your health, the type of job you have and your financial circumstances. If you are in poor health and have difficulty making ends meet, you should consider taking benefits early. You will get less money each month, but you will have more time to enjoy the benefits you receive. Similarly, if you have a relatively low paying job and your spouse earns considerably more than you do, it might be worthwhile to take your benefits early. On the other hand, if you come from a family where seniors live into their 90s, you might want to consider delaying benefits. Either way, it is a gamble.
The average life expectancy for women, age 65, in the United States is currently 86.6 years. For a 65 year old male, the average is 84.3 years. Consider those averages in weighing your options.
Go To The Social Security Office
Heading to your local Social Security office may be the best option, but its also less possible these days.
I usually recommend someone who isnt technologically efficient to apply in person or over the phone, says Daniel Vredeveld, CFP, financial adviser at Richmond Brothers in Jackson, Michigan. It usually helps to work directly with someone, that way you can avoid making accidental mistakes.
But an in-person appointment may come with drawbacks.
Since the start of COVID-19, actual manned Social Security offices have been running on a skeleton crew, so applying now could be time-consuming, says Chuck Czajka, CEO of Macro Money Concepts in Stuart, Florida.
You May Like: How Do They Figure Your Social Security Benefits
How Do Benefits Work And How Can I Qualify
While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:
Those who are currently retired
To people with disabilities
To the surviving spouses and children of workers who have died
Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.
There are four main types of benefits that the SSA offers:
Learn about earning limits if you plan to work while receiving Social Security benefits
What Documents Do I Need To Submit
To apply for Social Security Benefit you need the following documents:
- Your Social Security card or a record of your SSN
- Your original birth certificate, a certified copy from the issuing agency, or another kind of proof of your age. Photocopies or notarized copies are NOT accepted.
- If youre not U.S.-born you will need to have proof of lawful alien status or U.S. citizenship. Expired documents, notarized copies, or photocopies are not accepted.
- If you served in the military before 1968, you need to provide a copy of your U. S. military service paper. You can submit a photocopy of this document.
- Self-employment tax return for the previous year and/or a copy of your W-2 form . You can submit a photocopy of this document as well.
You can view the Social Security Checklist For Retirement, Medicare, and Spouses Application here.
If you have applied for Medicare or a Social Security claim, you should have already provided proof of age and/or citizenship. In this case, you may not need to submit proof of age or U.S. citizenship again.
It is recommended to apply for Social Security benefits as soon as you can. If you do not have all the above documents ready, you could still start the application process. Missing documents can be provided later.
If you delay applying for your benefits, you may lose out on receiving them.
Also Check: How Early Can You Get Social Security
Offer From The Motley Fool
The $18,984 Social Security bonus most retirees completely overlook: If you’re like most Americans, you’re a few years behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
What About Taxes On Social Security
Keep in mind that Social Security benefits may be taxable, depending on your “combined income.” Your combined income is equal to your adjusted gross income , plus non-taxable interest payments , plus half of your Social Security benefit.
As your combined income increases above a certain threshold , more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
Don’t Miss: What Is My Social Security Retirement Amount
How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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.
Don’t Miss: Will Social Security