One of the most difficult decisions you must make as you approach retirement is the age at which you would like to begin receiving Social Security retirement benefits. You have three options: You may begin taking benefits at age 62, you can wait until your full retirement age or you can delay benefits and take them anytime up until you reach age 70. It is important to understand the different options and benefit amounts before you start receiving benefits. Once you start claiming retirement benefits, you generally cannot change your mind and stop benefits.
The normal retirement age for receiving full Social Security retirement benefits varies, depending on when you were born. If you were born before 1937, your full retirement age was 65. For those born after 1937, the retirement age gradually increases until it reaches age 67 for people born in 1960 or later.
If you opt to receive benefits between age 62 and your full retirement age, your benefit amount will be reduced based on the number of months you receive benefits before you reach your full retirement age. For example, if your full retirement age is 66, the reduction of your monthly benefits at age 62 is 25%; at age 63, the reduction is about 20%; at age 64, the reduction is about 13.3%; and at age 65, the reduction is about 6.7%.
If you delay receiving social security benefits until after full retirement age, your benefits will increase in the form of delayed retirement credits. These annual increases apply for each year that you delay retirement, up until the age of 70. Generally, your benefit will increase by 6% to 8% for every year that you delay. For example, if your full retirement age is 66 and you delay taking benefits until age 70, your annual percentage increase in benefits will be about 8 %. By delaying your benefits by 4 years, your Social Security check will be 32% higher than the amount you would have received at age 66. If you want to get an idea of your projected benefits at age 62, full retirement age and age 70, you can review your annual Social Security statement which shows these estimated benefits. The Social Security Administration also offers online calculators to help you estimate your retirement benefits at each age. You can go to www.ssa.gov and under “Retirement,” click “Calculate Your Benefits.”
So when is the best time for you to claim Social Security benefits? More than 2/3rds of people take their benefits early. Some people may take early benefit because they need the money or they are skeptical of the future of Social Security or they are fearful of a short life span. Whether early retirement is a good option for you depends on whether you plan to keep working, your health and life expectancy, your spouse’s needs and the availability of other retirement plans.
Below are some factors you should consider as you decide which retirement age is best for you:
- Whether you plan to keep working. If you plan to work until your full retirement age or beyond, you may not want to claim early retirement benefits. If you are earning considerable income, you will miss the opportunity to boost your Social Security payment amount. Your monthly payment amount is fixed based on the average of your top 35 earning years. Once you elect to receive benefits, you cannot continue to increase your average based on later Social Security contributions. In addition, if you continue working and elect to receive benefits before full retirement age, you will face a potential reduction in benefits. For every two dollars you earn above the annual income limit ($14,160 in 2011), there is a $1 reduction in your Social Security benefit. There are no such deductions if you work after reaching full retirement age. However, any income you earn above Social Security income limit will be taxed. Not only will you be receiving reduced benefits, but you will pay tax on the income as well.
- Health and life expectancy. Taking Social Security early reduces your benefits but also means you will receive checks for a longer time. Taking Social Security later results in fewer checks during your lifetime but the checks will be larger. However, to get the full advantage of delaying benefits, you will need to live past the “break-even” age. The break even age is the age you must live so that the value of benefits received before reach full retirement age (or later) offsets the benefits that are forfeited by waiting to claim. If you die before the break-even age, you win by having taken early benefits. If you live beyond the break-even age, you have lost by taking early benefits.
You cannot predict exactly how long you will live, but if you are healthy and think you will live longer than the average life expectancy, than you may receive more benefits if you delay taking benefits. On the other hand, if you are in poor health or have reason to believe you will not beat the average life expectancy, you may decide to elect to take an early benefit.
- Spouse’s needs. Another important consideration is your spouse’s needs. A higher-earning spouse might want to delay benefits as long as possible so as to increase the surviving spouse’s survivor benefits and provide additional protection to the surviving spouse. A surviving spouse can receive Social Security based on his or her spouse’s work record if that benefit is higher than what he or she would receive based on his or her working years. Any increase in the higher-earning spouse’s income for delayed retirement is passed on in the survivor benefit for his or her spouse after his or her death.
Even if you delay taking your benefits past your full retirement age, your spouse can still take his or her spousal benefits anytime after age 62. While you are still alive, your spouse may receive one-half of your full benefit if it would be greater than what he or she would receive from his or her own earnings.
- Other Sources of Income. Claiming early benefits makes sense if you need the money for necessities. However, if you have sufficient income or other investments to live on you may want to defer the benefits until full retirement age or later. If you planned to invest the money, your investments would need to earn more than 8% annually to equal what you would make by delaying benefits until full retirement age.
There are many factors to consider when deciding the best age to receive Social Security benefits. It is a highly personal decision that depends upon your individual circumstances. You should consult an estate planning attorney and/or other financial professional to assist you in making your decision.
ping website
Tags: calculate your benefits, retirement, social security, Social Security Benefits, social security retirement benefits, SSI, SSI benefits
