Your Spouse Will Claim Your Benefit
If youre married, you cant just think about your own Social Security retirement benefits. You need to consider how your decision affects your spouse.
Often it makes sense for the higher-earning spouse to wait, particularly if theyre significantly older than the lower-earning spouse. If the higher earner dies before the lower earner, the lower benefit will be able to switch over to the higher survivor benefit. The widowed spouse can receive up to 100% of the deceased spouses benefits.
Plan First Withdraw Later
Healthcare coverage can be a major retirement expense, and Medicare is not all-inclusive. Before you choose to take Social Security, make sure you’ve reviewed your budget, being careful to factor in healthcare costs, inflation and unexpected events.
Don’t underestimate those expenses. A fixed income may not allow for much fluctuation. Also people are living longer, so retirement may be longer than you plan for. According to the SSA, more than 1 in 3 of today’s 65-year-olds will live to age 90. More than 1 in 7 will live to age 95.7
The decision of when to take Social Security is important and personal. It will likely factor in to how you meet current and future healthcare needs.
Plan before you make your next move, and be better prepared for what lies ahead. For added peace of mind, consult a financial advisor before making any major decisions about your Social Security and retirement date.
Explore Medicare
A Guide On Taking Social Security
Deciding when to take Social Security depends heavily on your circumstances. You can start taking it as early as age 62 , or you can wait until you’ve reached full retirement age or age 70 based on your work history. While there’s no “correct” claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement. Here are some guidelines to consider.
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Taxation Of Social Security
Eligibility to collect Social Security benefits begins at age 62, though many seniors wait until a later age in order to collect larger benefit amounts. Whether Social Security benefits are taxable by the Internal Revenue Service depends on how much additional income the person filing taxes receives. Some states also assess taxes on benefits.
When Can I Retire When Can I Take Social Security
Obviously, people want the option to retire as soon as they likethe earliest age generally being 62. But the decision to take Social Security retirement benefits can be complicated by your health, your marital status and your spouses Social Security plan.
One of the key factors is the year you were born, as when you were born will determine your Full Retirement Age For people born between 1943 and 1954, for example, Full Retirement Age is 66. As shown below, the Full Retirement Age creeps up by two months for every year between 1955 and 1960. Everyone born after 1960 currently has a Full Retirement Age of 67.
Full retirement age doesnt tell the full picture. As we will explain in this piece, retirement at each age has benefits and drawbacks.
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To Wait Or Not To Wait
Consider taking benefits earlier if . . .
- You are no longer working and can’t make ends meet without your benefits.
- You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
- You are the lower-earning spouse, and your higher-earning spouse can wait to file for a higher benefit.
Consider waiting to take benefits if . . .
- You are still working and make enough to impact the taxability of your benefits.
- Either you or your spouse are in good health and expect to exceed average life expectancy.
- You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.
The Problem With Filing As Early As Possible
Age 62 is the earliest age at which you can sign up for Social Security. However, youre not entitled to your full monthly benefit based on your personal earnings history until you reach full retirement age, or FRA.
Image source: Getty Images.
FRA hinges on your year of birth. And yours is either 66, 67, or 66 and a specific number of months.
If you claim Social Security at 62, youll lock in a monthly benefit thats 25% to 30% lower than what it couldve been at FRA . And that could prove problematic in a number of scenarios.
Remember that nest egg we talked about building? You might enter retirement with a nice pile of money in your name.
But what if the market tanks at any point during your retirement? Taking withdrawals could mean locking in serious losses, and you may have no choice but to tap your savings in the absence of a higher monthly Social Security benefit.
Furthermore, as you age, your healthcare costs might increase. Plus, you could end up needing long-term care, such as a home health aide or an assisted-living facility, both of which can be exorbitantly expensive.
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What Is Social Security Full Retirement Age
Full retirement age, or FRA, is the age when you are entitled to 100 percent of your Social Security benefits.
Depending on the year you were more, your Social Security full retirement age is between age 65 and 67.
Claiming Social Security benefits before the full retirement age will lower your monthly payments.
You can increase your retirement benefits by waiting past your FRA to retire.
What Is Full Retirement Age
For Social Security purposes, your full or “normal” retirement age is between age 65 and 67, depending on the year you were born. If, for example, your full retirement age is 67, you can start taking benefits as early as age 62, but your benefit will permanently be 30% less than if you wait until age 67.
If you can manage without receiving your Social Security benefits at full retirement age, you can wait until age 70. That will give you the maximum benefit each month.
There’s no advantage to waiting past age 70 to start collecting benefits.
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Working While Receiving Benefits
You may work after you start receiving benefits, which could mean a higher benefit for you in the future. We may withhold some of your benefits if you earn more than the yearly earnings limit. Sometimes people who retire in mid-year already have earned more than the annual earnings limit. However:
- We have a special rule that applies to earnings for one year, usually the first year you begin receiving benefits. This means we cannot withhold benefits for any month we consider you retired, regardless of your yearly earnings.
- After you reach full retirement age, we will recalculate your benefit amount to take into account any months you did not receive benefits because your earnings were too high.
This Reason May Lead You To Start Collecting Your Social Security Checks Early
If you’re looking forward to claiming your Social Security benefits one day, you might be assuming that you’ll have to wait until age 65. But you can actually start those checks rolling as early as age 62 — and as late as age 70 — with the size of the checks changing depending on when you start.
There are good reasons to claim your benefits early, and good reasons to claim them late. The most common age at which Americans claim their Social Security benefits is 62, so let’s take a look at why someone would do so.
Image source: Getty Images.
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You Can Receive Benefits Before Your Full Retirement Age
You can start receiving your Social Security retirement benefits as early as age 62, but the benefit amount will be lower than your full retirement benefit amount.
If you start receiving your benefits before your full retirement age, we will reduce your benefits based on the number of months you receive benefits before you reach your full retirement age.
If you wait until age 70 to start your benefits, your benefit amount will be higher because you will receive delayed retirement credits for each month you delay filing for benefits. There is no additional benefit increase after you reach age 70, even if you continue to delay starting benefits.
How Claiming Social Security Early Works
If youre claiming Social Security based on your own record or youre taking spousal benefits, you can start benefits as early as age 62. If youre a surviving spouse, you can begin receiving benefits at 60. However, by taking benefits earlier, youll face a lifetime benefit reduction.
Your Social Security benefit is based on your primary insurance amount. Thats the amount youd receive if you started your benefits at full retirement age. If you were born in 1960 or later, your full retirement age is 67. Full retirement age ranges from age 66 for those born in 1943 to age 66 and 10 months if you were born in 1959.
Any time you take Social Security before your full retirement age, youll have to accept a reduced benefit. Your benefit will be 6.66% lower for each year of early benefits. If you start them at that earliest eligible age of 62, your benefits will be 30% lower than theyll be if you wait until you reach normal retirement age.
However, if you can hold out past full retirement age, youll earn delayed retirement credits. These amount to 8% per year until your Social Security benefits cap out at age 70. Waiting until age 70 results in a monthly benefit thats 77% higher compared to if you started at age 62.
Pro Tip
If youre claiming spousal benefits, you wont be able to earn delayed retirement credits. Your benefit will max out at your full retirement age.
Maximum Social Security Benefit in 2023
|
Starting Age |
|---|
|
$4,555 |
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Social Security At Age 62
The table below shows the effect of early retirement on Social Security benefits for both a retired worker and his/her spouse if they start collecting benefits at age 62.
For this illustration, a Social Security benefit amount of $1,000 at Full Retirement is used.
| Year of | |
|---|---|
| 325 | 35.00% |
As you can see from the table above, depending on the year you were born, youll receive between 20 and 30 percent less per month if you collect Social Security benefits at age 62 than if you wait until full retirement age to begin collecting benefits.
Additionally, if you are claiming benefits as a spouse, youll receive between 25 and 35 percent less per month if you collect Social Security benefits at age 62 than if you wait until full retirement age to begin collecting benefits.
Youre Not Planning To Work
Taking Social Security while working before full retirement age will reduce your monthly benefit if your salary exceeds certain limits. In 2023, Social Security will reduce your benefit by $1 for every $2 you earn above $21,240. The year you reach full retirement age, the annual limit is $56,520 and Social Security will only withhold $1 for every $3 you earn above this amount. Once you reach your full retirement age, you dont have to worry about a reduced benefit.
But youre not permanently giving up that money. When you hit normal retirement age, Social Security will recalculate your benefit at a higher amount to give you credit for the withheld funds. However, this temporary reduction often makes it so that taking Social Security early when youre still employed isnt worth your while.
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How Retirement Benefits Are Calculated
How much youll receive in retirement benefits depends on how long you worked and how much you earned.
The Social Security Administration uses your 35 highest earning years to calculate your retirement benefits. Years with low or no income reduce your benefit amount. This means that if, for example, you left the workforce to care for children or other family members, you may want to continue working as long as possible. This will boost your retirement benefits by replacing a low or zero earnings year with a higher one.
You can review your earnings record onlineby creating and accessing your Social Security account. The SSAs Retirement Estimator can help you estimate your future retirement benefits.
For specific questions, call the Social Security Administration at 772-1213, visit Social Security onlineor find your local office here.
Will You Pay Taxes On Your Social Security Benefits
If, in addition to Social Security benefits, your retirement income includes taxable income in the form of wages, interest, dividends, and other sources, you could end up paying taxes on part of your benefits.
It all depends on your provisional income. Provisional income includes your adjusted gross income, plus tax-exempt interest, plus half of your Social Security benefits. Single taxpayers reporting $25,000 or less in provisional income pay no taxes on their Social Security benefits. For married taxpayers filing jointly, the threshold is $32,000. If your provisional income exceeds those limits, a part of your Social Security benefits will be taxable.
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Other Financial And Life Considerations
There are many other factors that might influence your decision to claim Social Security retirement benefits early. For example:
- Other sources of retirement income.
- How your income taxes may be affected by benefits.
- Personal considerations such as traveling, volunteering, returning to study, starting a business, pursuing a hobby, or moving your home.
- Dependent family members such as grandchildren or elderly parents.
SageVest Wealth Management understands that your wealth acquires new meaning as you approach and enter retirement. Our customized retirement planning includes a range of what if scenarios, to help ensure that your financial and life priorities remain aligned as you near and enjoy retirement. Please contact us for more information.
For more helpful articles on retirementand other financial topics, please visit our blog.
References
Prepared by SageVest Wealth Management. Copyright .
Standard Disclosure
In accordance with IRS CIRCULAR 230, we inform you that any U.S. Federal tax advice contained in this communication is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of avoiding penalties under the Internal Revenue Code or that may otherwise be imposed on the taxpayer by any government taxing authority or agency, or promoting, marketing or recommending to another party any transaction or matter addressed herein.
Taking Social Security: How To Benefit By Waiting
For those who are able to do so, it may make sense to wait even longer, because youll receive a larger monthly benefit even more than your full benefit. Every month past your full retirement that you delay, Social Security will increase your check by about 0.7 percent per month.
If your full retirement age is 66, then heres how much your check would increase:
| Retirement age | New benefit | A $1,000 check becomes |
|---|---|---|
| $1,320 |
So if your full retirement age is 66, then if you can wait two more years and claim benefits at age 68, youll increase your monthly check by 16 percent. In this case, if your full benefit were $1,000 a month, your new benefit would become $1,160 per month. And youll still receive cost of living adjustments on top of this amount, typically raising your payout a little each year.
Workers have other ways to grow their Social Security benefits, too, but its important to start early.
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Theres An Annual Social Security Cost
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is significant. Its the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government . In 2023, Social Security beneficiaries will likely see a 9.7% COLA in their monthly Social Security benefits, the biggest increase since 1981. The COLA for 2023 will be announced on October 13.
Heres what COLAs have been in other recent years:
Whats Your Social Security Break
If youre looking to maximize your total lifetime Social Security payout, youll want to conduct a break-even analysis to determine when you should start drawing your benefits.
Your break-even age occurs when the total value of higher benefits starts to exceed the total value of lower benefits .
For example, if you are eligible to collect a reduced $900 benefit at age 62 plus 1 month, and your benefit would increase to $1,251 at age 65 and 10 months, your estimated break-even age is 75 years and 5 months.
If you expect to live beyond that age, it could make financial sense to delay drawing benefits. The Social Security Administrations life expectancy calculator can help you decide.
When it comes to calculating a start date for Social Security benefits, however, theres not an age thats appropriate for everyone. Consider your own financial needs, health and other retirement plans before making the call. If you cant reasonably afford to live without taking benefits, it may make little sense to delay taking your benefit.
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