Monday, May 16, 2022

When To Start Drawing Social Security

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Youre Concerned Social Security Will Disappear

New tool can help you decided when to start drawing Social Security

Some people are concerned about potential Social Security changes in the future, such as higher retirement ages, lower benefits or higher taxes on benefits. As a result, they want to take the sure thing as soon as possible. In a 2017 Social Security summary, the government said Social Security trust funds will be depleted in 2034. Even then, however, annual Social Security taxes are projected to keep benefits at almost three-fourths of current levels.

What Happens If You Claim After Your Fra

If you wait until youre 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. You also need to weigh in some other factors, including your expected longevity and whether you plan to file for spousal benefits. You will also need to consider the tax, investment opportunity, and health coverage implications.

How Old Do You Have To Be To Get Social Security Disability

You must be at least 62 for the entire month to receive benefits. Percentages are approximate due to rounding. The maximum benefit for the spouse is 50 percent of the benefit the worker would receive at full retirement age. The percent reduction for the spouse should be applied after the automatic 50 percent reduction.

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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

Earned Income Before Age 66 Or 67

Age to Start Drawing Social Security

The Social Security Administration defines your full retirement age as the day you are able to start collecting benefits. It depends on the day you were born, and for most people ends up being about age 66 or 67. But you’re allowed to retire, as the SSA defines it, as early as age 62. If you reach this age and you are still working, you may wish to start receiving your benefits right away, but this doesn’t always make the most sense in the long run.

Why? Because if you earn over the earnings limit, your benefits will be reduced. The SSA uses your own income to figure how much they should pay each month, and if you’re making money they assume you don’t need the full amount. But once you reach full retirement age your benefit each month will stay the same, whether or not you have any other sources of income.

You should also keep in mind that when tax season rolls around, your benefits are counted as income, and so your monthly check from the SSA will be taxed along with any other income you earn.

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Things To Know Before Drawing Social Security Retirement Benefits

In an ideal world, we could all use our Social Security retirement benefits to supplement the retirement savings weve amassed over decades of sweating away at demanding jobs and investing wisely. Thats true for many, but sadly, most Americans arent in that situation when they retire.

In fact, among those old enough to draw social security retirement benefits, around 21% of married couples and about 45% of single people rely on their monthly social security check for 90% or more of their income, according to the Social Security Administration . The average monthly benefit: $1,514.

Whether youre looking forward to a comfortable retirement or plan to rely mainly on social security benefits to get by, it pays to know as much as possible about when to start drawing your benefits, whether youll be taxed and other important factors.

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You Already Have Your 35 Highest

Your Social Security benefits are based on your earnings in the 35 years that you had the most compensation. If youâre in your peak earning years, you could boost your benefits if you keep working a few more years and delaying your benefits. However, if you arenât going to increase your average earnings, such as if youâre only working part-time or youâve had to retire early, you wonât miss out on the chance to boost your benefits with higher earning years. However, youâll still receive a smaller benefit for not waiting until full retirement age.

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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.

At What Age Can You Earn Unlimited Income On Social Security

When You Should Start Drawing On Social Security

Upon reaching full retirement age, you can earn an unlimited income while still receiving Social Security. Full retirement age varies based on the year in which you were born. That age can range anywhere from 65 to 67 based on your birth year. For those born after 1960, you will have to wait until you are 67 to be considered full retirement age. However, for those born before that, you might be able to retire as early as 65.

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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.

Youll Get A Bigger Monthly Social Security Check If You Wait Until 70

Claiming Social Security before you reach full retirement age will result in a reduction in benefits as much as 25% to 30% less than you would have received if you had waited. That reduction is permanent.

Instead, if you wait to take your benefits until after your FRA, Social Security will add an 8% delayed retirement credit to your eventual monthly payout each year you hold off, up until age 70.

Thats a guaranteed return of 8% per year of deferral after your FRA, which could be more than you might receive with any other fixed products right now. Its definitely more than the cost of living adjustments that Social Security beneficiaries have been getting for the past decade, which have averaged about 1.5% a year.

Those COLA increases are not always enough to keep up with true inflation. And, when there is a COLA for Social Security, it may be coupled with a Medicare premium increase.

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Drawing Social Security Late

While receiving Social Security benefits early comes with a benefit, waiting until after your full retirement age passes can also be beneficial. As you wait, you earn delayed retirement credits, which result in a boost to your payments when you decide its time to draw Social Security.

For every year you wait beyond your full retirement age, you receive a benefit increase of 8 percent. For example, if your full retirement age is 67, and you wait until you are 70 to claim your benefits, your monthly payment is 24 percent higher.

However, once you reach age 70, there is no additional increase for waiting. While you arent required to file for benefits at that time, delaying any further doesnt give you any more increases, so you are simply missing out on money that could boost your income.

An Example Of Taxed Benefits

When must someone start drawing on Social Security ...

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 really be a mere $225. You can read all about the taxation of Social Security benefits in Internal Revenue Service Publication 915.

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How A Social Security Break

Figuring out the right time to start taking Social Security benefits isnt always a straightforward process. A Social Security break-even calculator can help you get some perspective on the numbers so you know what you stand to gain or lose by taking benefits earlier versus later.

Social Security break-even calculators help you find the best age to start taking retirement benefits. They do this by comparing your cumulative Social Security retirement benefits paid at age 62, your full retirement age and at age 70 and estimating how long it would take the benefits paid at age 70 to break even with benefits paid starting at age 62.

Heres a simple calculation to give you an idea of how a Social Security break-even calculator works. Say that you have the option to begin receiving $1,200 a month in benefits at age 62. Youd receive $1,700 in benefits if you wait until full retirement age at 66. Or you could receive $2,200 a month in benefits by delaying them until age 70.

The break-even point represents when the cumulative benefits even out. So if you wait until age 70 to start taking benefits, it would take you until age 79 to break even with the benefit amount youd receive if you started taking them at age 62. If you were to start receiving benefits at age 66, it would take you until age 75 to break even with the benefits youd receive if you started them at 62.

Are You Still Working

Americans may file for Social Security benefits when they turn 62, even if they are still collecting a paycheck. However, starting Social Security benefits at age 62 is four to five years before full retirement age , which is when you can expect to receive a full, unreduced benefit.

If you begin taking Social Security benefits early, each there is month between your start date and your full retirement age permanently reduces your monthly payment by about half a percent.

In addition to seeing a permanent reduction in monthly benefit, if you are still working while collecting early benefits, you may see some of your Social Security payments withheld because of something called the earnings test. If you havent reached full retirement age, you will see $1 of your Social Security benefits withheld for every $2 over $18,960 that you earn. This test changes to a withholding of $1 in benefits for every $3 you earn above $50,520 up to the month of your birthday during the year you reach full retirement age.

Take a 63-year-old beneficiary who is earning $35,000 per year while also taking Social Security benefits. Their annual income is $16,040 above the earnings test limit, which means $8,020 will be withheld from their Social Security benefits.

Once you reach the Social Security full retirement age, you can work as much as youd like without imperiling your monthly benefit, though youll still be on the hook for income taxes.

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Is It Best To Take Social Security At 62 Or Wait Until 66

Social Security payments are reduced if you claim them before your full retirement age, which is typically age 66 or 67, depending on your birth year. If you sign up at age 62, you will get 25% smaller Social Security payments if your full retirement age is 66 and 30% lower payments if your full retirement age is 67.

Do You Qualify For Railroad Retirement Benefits

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The high-level criteria for receiving railroad retirement from the RRB is relatively simple. You qualify for railroad retirement benefits if you:

  • performed creditable railroad service for 10 years.
  • performed creditable railroad service for five years, if that work occurred after 1995.

The RRB also breaks down the benefits into tiers and awards them based on employee and employer tax withholdings. All qualified beneficiaries enter Tier I, but not all Tier I recipients have enough creditable earnings to receive Tier II benefits.

Benefits arent limited to full-time, daily employees workers get credit for a months worth of railroad service for any amount of time worked within that month, even if its a single days work. If you have any questions about your eligibility or benefits, contact your local RRB field office.

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Apply For Retirement Benefits

Starting your Social Security retirement benefits is a major step on your retirement journey. This page will guide you through the process of applying for retirement benefits when youre ready to take that step. Our online application is a convenient way to apply on your own schedule, without an appointment. You can also apply by phone or by appointment at a Social Security office.

The Source Ofand Solution Tothe Problem

When the current Social Security formula was put in place in 1977, no provision was made for the contingency that economic conditions would be so dire that average wages would fall in any given year. This problem first surfaced in 2009 during the Great Recession. The AWI, however, fell by a relatively small amount, and policymakers chose not to do anything about it. As a result of the COVID-19 pandemic, however, the decline in the AWI is likely to be about four times as big now as it was during the Great Recession.

There is ample precedent for fixing this problem. The first precedent concerns Social Security cost-of-living allowances . As mentioned above, payments in years after beneficiaries first year of retirement are indexed to inflation using a version of the consumer price index . However, under the law, if prices fall in any year, benefits are not adjusted downward rather, they remain the same. The second precedent concerns the Social Security contribution and benefit base, also known as the taxable maximum. The taxable maximum is the dollar amount of annual earnings above which the Social Security payroll tax does not apply. The taxable maximum is indexed to the AWIbut like COLAs, it is never adjusted downward.

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The Bottom Line On When To Claim Your Social Security

Every individuals and couples needs are different when it comes to claiming Social Security. But maybe waiting until age 70 is something we should seriously consider.

Even if youve already filed, you may find that youre eligible for a do-over. You can withdraw your application for up to 12 months after you file, and reapply later. But you only get one do-over. If it makes sense for you to do this, youll have to pay back the Social Security benefits that you received, and in many cases your IRA or 401 may be where you have to get that money.

If you arent sure which Social Security claiming strategy is the best fit for your needs and goals, talk to a financial adviser who is knowledgeable about retirement income planning and, specifically, Social Security benefits. An experienced professional can lay out all your options and help you work out a timeline.

Kim Franke-Folstad contributed to this article.


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