This is one of the most frequent questions we receive. It is such a seemingly simple question but has a very complex answer. Each individual or couple’s situation is different. This information is for educational purposes only.
Social Security Basics
- The earliest you can start collecting benefits is age 62, and the amount depends on the number of months that remain until you reach full retirement age (FRA). If you are 62 now (born in 1948), you can collect 75% of the amount you would receive if you waited until age 66 (in 2014). And if you work and make more than $37,680 (adjusted annually for inflation), you reduce your benefits $1 for every $3 above that amount.
- But if you wait until 2014 to collect benefits (at age 66), there is no reduction of benefits regardless of your earnings.
- Or if you wait to receive benefits until age 70, your FRA benefit increases annually by 8%! The percentage increase depends on your year of birth. You can check yours at http://www.socialsecurity.gov/retire2/delayret.htm
- A spouse receives 50% of the higher wage earner’s benefit.
The calculation of how much you receive is based on actuarial tables. The reduced benefits of starting before FRA and the additional amount you receive by waiting until 70 will equal the same total lifetime payout regardless of when you start your benefit. In other words, the total of all payments adds up to the same amount paid over your lifetime (according to the actuaries), whether you start at age 62, 66, or 70.
Issues to Consider
- Do you need the retirement income to live on?
- How much of the money will be subject to taxes?
- Can you afford to wait and collect more benefits later? (by working after your FRA)
- Are you in poor health?
- What is your life expectancy, based on your family history?
Strategies to Consider
- Wait to take your benefits if you have a long life expectancy.
- Wait to take your benefits if you want your spouse to have more income after you die.
- If you are working and don’t need the money, consider taking the 8% return (by working until 70).
- Start benefits but go back to work: You can repay (interest-free) the benefits already received and delay filing to receive the increased benefit.
- For two wage earners: how can you mix and match benefits to maximize your income?
- Claim and suspend: A working spouse who reaches FRA can claim and suspend benefits while continuing to work, while the non-working spouse files for the benefit of 50% of the working spouse’s benefits.
If you would like to get in touch with us to consider Social Security benefits as part of your retirement plan, please go to www.FinancialConnections.com.