Effect Of Late Retirement On Benefits
1.Represents Full Retirement Age based on DOB Jan. 2, 1955
2.PIA = The primary insurance amount is the basis for benefits that are paid to an individual
To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70, assuming you continue to work and earn about the same amount until age 62, full retirement age, or age 70 before retiring. If you need a copy of your annual statement, you can request one from the Social Security Administration .
When Can I Start Collecting Social Security
The minimum age to claim benefits is 62. If you are turning 62 and need the income from Social Security to support yourself, then you can start claiming your benefits now. However, if you have enough other income to keep you going until you are older, you may want to delay increasing the size of your monthly benefit.
Facing A Possible Income Gap In Retirement
Social Security was created to promote the economic security of Americasworkers. However, its important to understand that Social Security willonly replace a portion of your pre-retirement earnings, leaving you with apotential income gap.
The amount of income that Social Security will replace depends heavily onyour career income. The table below shows how Social Security replacesa greater percentage of income for modest earners versus higher earners
|Earnings Scale||Percent of Career-average Earnings Replaced|
Table assumes current-law scheduled benefits, and that hypothetical retirees turn 65 in 2020 and begin collecting benefits at age 65. For simplicity, example does not include tax adjustments.Source: SocialSecurity.gov, “Replacement Rates For Hypothetical Retired Workers,” April 2019.
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Receiving Benefits At Age 70
At age 70, if its not insolvent, I would receive $45,480 in benefits annually. By this time, we have taken $100,000 out of our retirement accounts annually for 8 years.
When I reach age 82, our retirement account balance would be an estimated $5,257,228. That is a negative difference of $285,185, which is about $84,833 more than the 8 years of benefits when taken at 62.
But what would happen if Social Security was no longer there?
Making Sure You Have Submitted All Your Information Correctly Could Speed Up The Processing Time Of Your Application But It Could Still Be Over A Month
Without delays concerning the pandemic, it can take the Social Security Administration about six weeks to process an application. For many people, this benchmark is even too long. For someone requiring support to survive, six weeks can be an eternity.
Another factor which affects the turnaround time of applications is making sure your application is correct mistakes obviously make the process longer.
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Your Retirement Income Stream
To maintain your standard of living in retirement, financial experts say you’ll need about 70 percent of your current income. As a result, financial planners have long recommended that Social Security benefits be viewed as just one leg of a “three-legged stool” needed for financial security in retirement. The second leg would be employer-based pensions, 401 plans and the like. The third leg would be earnings and asset income.
If you’re like many Americans, a single assetyour homemay represent your most important financial resource for retirement, after Social Security. You can sell your home to create an instant nest egg for retirement, for example, or tap its equity through a line of credit or reverse mortgage. Or, by paying off your mortgage and continuing to live in your home, you can dramatically reduce the amount of income you’ll need to cover expenses during retirement.
Considering The Effects Of Longevity
With the average life expectancy being 84 for todays 65-year-oldmale and 86½ for todays 65-year-old female, longevity is among themost important considerations in deciding when to start collectingSocial Security. The longer your life expectancy, the more advantageousit may be to delay collecting benefits.
The example below shows total Social Security benefits collectedwhen beginning at certain ages and highlights when waiting to collectbecomes more advantageous. It assumes a $1,000 monthly benefit ata full retirement age of 66½.
|Collecting at 66½ produces greater total benefits than collecting at age 62 if you live to age 78|
|Collecting at 70 produces greater total benefits than collecting at age 66½ if you live to age 82|
Social Security benefits are adjusted to reflect any increase in the cost of living, measured by the Consumer Price Index, to ensure the purchasing power of Social Security benefits is not eroded by inflation. For simplicity, this example does not include any cost of living adjustments.
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What Is The Future Of Social Security
If you’re skeptical about the future of Social Security or wary of potential changes such as means testingwhich could reduce or eliminate benefits for the wealthy, or an increase in the full retirement ageyou may be tempted to start benefits early, under the assumption that it’s better to have something than nothing. The 2021 annual report from the Social Security Trustees, released in August 2021, projects that the Social Security Trust Fund has enough resources to cover all promised benefits until 2034. Then, absent a change from Congress, the trustees project that benefits would need to be cut for all current and future beneficiaries to about 78% of scheduled benefits. The 2021 report includes the trustee’s best estimates of the impact from the pandemic, which were not reported on last year.
Over the longer term, changes such as later benefit dates or means testing may be considered.
In any situation, if you’re particularly concerned about the future prospects for Social Security, that’s a good reason to save more, and earlier, for your retirement.
Youre Planning Your End
Your Social Security benefits stop paying at your death, so if you die prior to collecting benefits, youll have missed out on benefits entirely. You need to figure out how to maximize your Social Security income, instead. For example, say youre planning to wait until age 70 so you can claim the larger monthly benefit. If you die right before your 70th birthday, you wont receive any benefits. Its very difficult to predict how long youll live, especially if youre in good health now. However, if you are suffering from a terminal or serious illness, the increased monthly benefit for delaying Social Security might not be worth it.
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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.
Social Security Disability Programs
In addition to retirement benefits, the Social Security Administration manages two programs that provide benefits to people who are disabled or blind.
- Social Security Disability Insurance Program
- SSDI supports disabled or blind individuals by providing benefits based on their workers contributions to the Social Security trust fund. Your contributions are based on your earnings or your spouses or parents earnings while in the workforce. Your dependents may also be eligible for SSDI benefits based on your earnings.
- Supplemental Security Income Program
- SSI benefits are paid out as cash assistance to people with limited incomes and resources who are elderly, blind or disabled. These benefits may also include blind or disabled children. SSI payments are a federal benefit funded by the general fund of the United States not the Social Security trust fund. Some states provide additional state supplemental benefits in addition to the federal SSI payments.
In some cases, people may be eligible for both SSI and SSDI at the same time. The Social Security Administration calls these concurrent benefits. This can happen when a disability qualifies you for Social Security Disability Benefits, but you only get a small amount of monthly SSDI benefits. This may qualify you to receive SSI benefits as well.
Comparing SSDI and SSI Programs
|Up to 85%|
Income Taxes for Other Benefit Programs
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Calculate The Best Time To Start Social Security
If you are confused about when to start, you can use the Social Security Explorer part of the NewRetirement Retirement Planner to compare your monthly income and maximum lifetime payout at different ages.
Or, you might consider the following rules of thumb:
- Take Early: The only people who should consider taking their Social Security early are those who absolutely need the money immediately, or those who do not expect to live for very long, due to illness
- Take at Full Retirement Age: Should you have reason to believe that you will not live past the age of 80, then generally speaking you will maximize your social security benefits if you take them when you reach your Full Retirement Age.
- Wait as Long as Possible: On the other hand, if you are confident that you will live past the age of 80 or 85, then most experts recommend that you defer your social security for as long as you can , so as to maximize the benefits you receive from it.
- Other: If you have dependent children, the additional benefits you receive for them might make filing when you are younger worthwhile.
It can also be a very good idea to have an overall retirement plan before you decide when to start your Social Security benefits. The NewRetirement Retirement Planner can help you assess all of your sources of retirement income and whether or not you will have enough to cover your expenses. This tool was recently named a best retirement calculator by the American Association of Individual Investors .
What Is Social Security And Who Is Eligible To Receive Social Security Benefits1
Social Security is a U.S. federal program that provides enrolled individuals with a source of income when they become unable to work or earn sufficient wages on their own. There are three types of Social Security benefits:
You are eligible to receive Social Security benefits in the United States once youve accumulated 40 work credits as long as you also pay Social Security taxes . Non-U.S. citizens who are living legally in the United States and have earned benefits can also collect Social Security.
Can I Retire At 55 And Collect Social Security
So can you retire at 55 and collect Social Security? The answer, unfortunately, is no. The earliest age to begin drawing Social Security retirement benefits is 62. … Once you turn 62, you could claim Social Security retirement benefits but your earnings from consulting work could affect how much you collect.
Calculating Your Retirement Benefits For Each Option
To find out how much your benefits will increase or decrease depending on the age you retire, go to Social Security’s Early or Late Retirement Calculator. The SSA also offers online calculators to help you estimate your retirement benefits at each age. You can also see a personalized comparison of retirement benefits at age 62, at full retirement age, and at age 70 on your Social Security Statement. Go to www.ssa.gov/mystatement to view your statement. Social Security sends out printed statements every five years to those not receiving benefits, and every year to those over 60.
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A You Can Continue Working And Start Receiving Your Retirement Benefits
If you start your benefits before your full retirement age, your benefits are reduced a fraction of a percent for each month before your full retirement age.
You can get Social Security retirement benefits and work at the same time before your full retirement age. However your benefits will be reduced if you earn more than the yearly earnings limits.
After you reach your full retirement age, we will recalculate your benefit amount to give you credit for any months you did not receive a benefit because of your earnings. We will send you a letter that explains any increase in your benefit amount.
If you delay filing for your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit. If you also continue to work, you will be able to receive your full retirement benefits and any increase resulting from your additional earnings when we recalculate your benefits. Once you reach full retirement age, your earnings do not affect your benefit amount.
If you start receiving retirement benefits before age 65, you are automatically enrolled in Original Medicare when you turn 65. If you or your spouse are still working and covered under an employer-provided group health plan, talk to the personnel office before signing up for Medicare Part B. To learn more, read our Medicare publication.
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.
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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.
Congress Must Act Sooner Rather Than Later
In theory, the AWI problem could be fixed anytime before 2022, when, for example, workers who turn 60 this year are first eligible to retire at the age of 62. But that delay would cause significant anxiety for these workers, whose future benefits would be at risk. Moreover, people decide when to retire based on projections of their incomes in their initial year of retirement and in the remainder of their lives. It would be most unfair to workers decision-making processes to have the expectations of their future incomes be uncertain for some period of time while they are trying to make such an important decision.
Congress needs to act sooner rather than later to ameliorate this problem. One possibility would be to include a fix in the stimulus legislation to cope with the economic effects of the COVID-19 pandemic that Congress is currently considering.
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