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Social Security Benefits And Early Retirement

I Wont Live Long Enough

Want to Retire Early? Don’t Make this BIG Social Security Mistake

Another reason people choose to claim benefits early is that they worry they wont live long enough to enjoy the extra income. Those who claim early for this reason typically suffer from a chronic illness or have a family history of disease, AARP noted.

While your family history and health should be a deciding factor, AARP also noted that the average American who reaches age 65 can expect to live nearly 20 additional years.

Watch Out For Hidden Costs

Youll also want to consider other lifestyle factors, especially Medicare. Americans become eligible for federal health insurance coverage at age 65, well after when you can begin to file for Social Security.

If you stop working at age 62 and lose health insurance, you have to get supplemental insurance to bridge the gap until you turn 65 and Medicare kicks in, Neiser says.

If you work during retirement, you have another incentive to delay collecting Social Security. Earning too much at a job after you begin collecting your benefit can reduce your payout, but only if you have yet to hit full retirement age.

However, when you hit full retirement age, your benefit will increase to account for any benefit that was withheld earlier due to working. Heres how much you can earn and not get hit.

If youre younger than full retirement age for all of 2022, the Social Security Administration will deduct $1 of your monthly check for every $2 you earn above $19,560 per year.

If you reach full retirement age in 2022, the administration deducts $1 of your monthly check for every $3 you earn above $51,960 until the month you reach retirement age.

Youll also owe Social Security and Medicare tax on your earnings, even if youre already receiving benefits.

So those are some potential pitfalls to claiming Social Security early.

Origins Of The Federal Civilian Retirement System

Congress passed the Civil Service Retirement Act of 1920 to provide pension benefits for civilian federal employees. In 1935, Congress created the Social Security system for workers in the private sector. During the 1950s, Congress allowed state and local governments to bring their employees into Social Security, and today about three-fourths of state and local employees are covered by Social Security. Federal employees remained outside of Social Security until Congress passed the Social Security Amendments of 1983 rel=nofollow> P.L. 98-21). This law required all civilian federal employees hired into permanent employment on or after January 1, 1984, to participate in Social Security.

Enrolling federal workers in both CSRS and Social Security would have resulted in substantial duplication of benefits and would have required employees to contribute more than 13% of pay to the two programs. Consequently, Congress directed the development of a new retirement system for federal workers with Social Security as its cornerstone. The new plan was designed to include many features then existing in the retirement plans of large private-sector employers. The result of this effort was the Federal Employees Retirement System Act of 1986 rel=nofollow> P.L. 99-335), enacted on June 6, 1986. The FERS has three elements:

  • Social Security,
  • the FERS basic retirement annuity and the FERS supplement, and
  • the Thrift Savings Plan.

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Social Security Reporting Information And Full Retirement Age Table For Homestead Exemption Applicants

This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue until amended. A guidance document does not include internal procedural documents that only affect the internal operations of DOR and does not impose additional requirements or penalties on regulated parties or include confidential information or rules and regulations made in accordance with the Administrative Procedure Act. If you believe that this guidance document imposes additional requirements or penalties on regulated parties, you may request a review of the document.

This guidance document may change with updated information or added examples. DOR recommends you do not print this document. Instead, at revenue.nebraska.gov to get updates on your topics of interest.

Per Neb. Rev. Stat. § 77-3504 of the homestead exemption laws, household income must include social security retirement and Tier I railroad retirement benefits.

Social Security Conversion from disability benefits to retirement benefits occurs at FULL RETIREMENT AGE per the Social Security Administration.

Look At The Big Picture

Social Security Age Chart: When to Start Drawing Bene...

The less time you spend in the workforce, the less opportunity you’ll have to contribute money to your nest egg. And also, the sooner you retire, the sooner you might have to start tapping your savings, thereby increasing the risk of your money running out in your lifetime.

Image source: Getty Images.

All of that may be pretty obvious. But what’s less obvious is the way an early retirement might affect your Social Security benefits.

The monthly benefit you’re entitled to from Social Security is based on your personal wage history — specifically, your 35 highest-paid years on the job. But if retiring early makes it so you don’t put in a full 35 years in the workforce, then your monthly benefit could take a serious hit, because you’ll have a $0 factored into that equation for every year you’re without an income.

Now, let’s say you started working at age 25 and you recently turned 60. You might, at that point, assume that retiring early won’t affect your Social Security benefits, since you’ll have put in a full 35 years on the job.

But early retirement could still leave you with a lower benefit in that scenario. The reason? Many people end up earning a lot more money at the end of their careers than at the beginning or middle. And if you stop working at a time when your income has peaked, you might end up with a lower monthly benefit as a result.

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Financial Benefits Of Working Longer

Many people want to retire as soon as it is financially feasible to do so, but it’s crucial to consider the earning and investing power you may give up if you stop working full-time and take Social Security at 62. If you leave a job with good pay and benefits, it may be difficult ever to regain that level of compensation if you need or want to return to work later. Of course, not everyone can keep working, but it is something to consider if you are healthy and have the opportunity to stay in the workforce, in either a full-time or part-time capacity.

The compensation benefits of your job could also affect your Social Security. Some companies allow stock awards to continue to vest after retirement date, and even into years to follow. These payouts are considered income, and could cause your Social Security payment to be taxed, or taxed at a higher level than in years after the awards have fully distributed. Delaying Social Security payments until those other income sources have been reported for tax purposes is worth consideration.

But there’s even more to the story. As you approach retirement, you’re often at the upper end of your lifetime earnings trajectoryand of your ability to save more for retirement. In addition, if you can keep working, you can make “catch-up” contributions to a tax-deferred workplace savings plan like a 401 or 403 or a traditional or Roth IRA. Catch-up contributions allow you to set aside larger amounts of money for retirement.

An Example Of The Fers

Thus, by way of example: Hypothetical Annuitant A: A former Postal worker made $55,000.00 per year Thus, in the first year, he receives $33,000 as his FERS annuity , and in the second year, $22,000 as his FERS annuity . Rounding off the numbers to simplify, lets say that it comes to around $3,000 per month for the first year, then $2,000 per month for the subsequent years. The former Postal worker also gets SSDI approved, and the amount comes to $2,000 per month.

How does the offset work? Well, as SSDI is primary, the Postal worker would receive $2,000 from Social Security the first year, and $1,000 from his FERS annuity , and in the second and subsequent years, he would receive $2,000 from Social Security and $800.00 from FERS . If Annuitant A works at a private-sector job and makes $1,000 per month, all well and good for, that amount would not exceed the threshold for either the FERS Disability Retirement annuity nor the SSDI allowable amount. If, however, he goes out and makes $2,000 per month, or some higher amount that violates the allowable threshold for Social Security, then he will lose the SSDI benefit, and any prior offset with FERS will be recalculated to allow for the full annuity.

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Can I Qualify For Ssi While Collecting Social Security Retirement Benefits

While you cannot collect Social Security retirement and SSDI at the same time to increase your benefits beyond the full retirement amount, there is a program that may allow you to collect additional income.

SSI, which stands for Supplemental Security Income, is a Social Security program that helps seniors and those with a disability who have an extremely low income or limited assets. To qualify for SSI, you need to meet strict income qualifications and have only a minimum amount of resources. Resources, as the SSA defines the term, can be anything that can be turned into cash, such as:

  • Bank accounts, stocks, or U.S. savings bonds

Drawbacks To Applying For Ssdi And Retirement

Social Security Spousal Benefit Early Retirement 62

This can backfire on some people, however. If you apply for early retirement but do not receive approval for your SSDI claim, you may be stuck drawing a smaller amount of retirement for the rest of your life. If this happened to you, we may be able to help you in appealing the SSDI denial. You have only 60 days to file this appeal after receiving a notice about the SSAs decision, however, so contact us as soon as possible after you receive a denial.

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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:

Youre Worried You Wont Live A Long Life

Social Security is actually supposed to pay you the same lifetime total regardless of when you initially claim benefits. Think about it this way filing at age 62 will mean getting less money each month, but enjoying more months of benefits. Waiting to file will mean getting more money each month, but over a shorter period of time.

All told, things should even out if you live an average lifespan. But if you have reason to believe youll pass away at a relatively early age, then it pays to claim Social Security at 62. Doing so could mean getting a higher lifetime benefit from the program.

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Will Baby Boomers Get Social Security

Current retirees probably have the least to worry about when it comes to receiving Social Security. Older adults are also due to receive a pay bump in January, thanks to a cost-of-living adjustment, making payments higher by 8.7%. For the average beneficiary, that’s an extra $146 for a total of $1,827 per monthly check. This hopefully means that your Social Security dollars can retain their purchasing power against inflated prices on everything from food to gas and travel. Beneficiaries should learn about their specific benefit rates by mail in December. You can also verify your new total on the Social Security website.

If you’ve yet to reach retirement age, but that day is approaching, know that if you wait until age 70 to claim Social Security, your benefit jumps by about 8% a year beyond your full retirement age.

Dont Take Early Retirement If You Are Disabled


Are you considering Early Retirement, because of A Disability? STOP!

Social Security Disability could pay you full benefits.

If you have worked long enough, and paid enough Social Security taxes on your earnings, you are covered by Social Secret Retirement and Social Security Disability. Social Security will reduce your benefits if you retire early. Calculate the effect of early retirement on your benefits. Please contact me if you live in my service area and your health is making it difficult to continue at your work. Your Social Security retirement benefits will not be reduced if you are found to be eligible for Social Security Disability before your retire.

If you are disabled and approaching retirement age and have not yet filed for retirement benefits, call me if you live in Hampden County MA or North Central CT.

If you live in Hampden County, MA or in Suffield, Enfield or Somers, CT, and you have not yet taken early retirement, I can explain how Social Security Disability regulations apply to your claim, if you are not able to continue working.

If you live outside my service area and you are disabled and approaching retirement age and you have not yet filed for retirement benefits, you may call Attorney Avram L. Sacks of Skokie, Illinois at 206-0276.

Early Retirement reduces your income for the rest of your life!

A Your question requires an answer from a disability attorney in your state, who understands the details of your case.

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You Want The Money Now

Even if you don’t need your benefits early to support yourself, you may have other reasons for wanting to take them as soon as possible. Some people, for example, are concerned that Social Security may be unable to meet all of its obligations in the future, so they might as well get theirs now. Others believe they could do better by collecting benefits and investing them, rather than leaving it in the government’s hands.

That said, you would have to be a skilled investor to beat the 6% to 8% guaranteed annual return on your money that Social Security offers to those who wait until full retirement age or later.

Social Security Will Run Out Of Money

Nearly a third of survey respondents were concerned that the program would run out of money, says AARP, but this isnt how the Social Security program works. Social Security is a pay-as-you-go program, meaning that as long as workers and employers pay payroll taxes, Social Security will not run out.

However, Social Security pays more in benefits than it collects in revenue. The program may have reduced benefits in the near future unless Congress takes action.

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Do You Want Or Need To Keep Working Past 65

Do you love your job? Do you enjoy the structure of your work life, the comradery of working as part of a team? Maybe youd just like a few more years to beef up your retirement fund before you say goodbye to a steady paycheck.

You can work as long as you’re healthy and inspired, age aside. However, your age does affect timing for Medicare and Social Security.

Here’s what you should know about working past the retirement age:

Potential Pros

  • A bigger pension and/or 401
  • A larger nest egg
  • Coordinating your schedule with your spouse’s, if he or she is still working

Potential Cons

  • Choosing to work past 65 may affect your Social Security and Medicare options
  • At age 70 ½, required minimum distributions from your individual retirement accounts apply
  • Withdrawals will factor into your taxable income

Lets Walk Through An Example Together

What Happens To My Social Security If I Retire Early?

Say Jane is a FERS, and she will retire with 30 years of creditable service. She has reached her MRA, which is 57. And her age 62 Social Security benefit will be $1,200 a month.

Approximately how much will her FERS Supplement be?

Well, we take 30 years of service divided by 40 = .75 Now take .75 times $1,200 = $900.

So Janes Supplement will be approximately $900 a month. And shell receive this supplement once she retires and up until the month she turns 62.

But were not done quite yet.

That is an estimate of the gross amount, but what is the approximate net amount Jane will receive?

Will Janes Supplement be subject to any reductions? And will it be subject to taxes?<

Very likely. The government giveth, and the government taketh away.

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Reasons You Should Claim Social Security Early

Learn why Social Security at 62 might not be a bad idea. Social Security 101

Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can have a big impact on your planning. The earliest you can collect is age 62, but youll get more money if you delay your benefits past your initial Social Security eligibility. If you wait until after your full retirement age to start collecting Social Security you can earn delayed retirement credits, which will increase your benefits even more.

Learn: 7 Surprisingly Easy Ways To Reach Your Retirement Goals

You might think that waiting for bigger benefits is better, but thats not always the case. There is no definitive answer to when you should collect Social Security benefits, and taking them as soon as you hit the early retirement age of 62 might be the best financial move. Learn why you might want to start taking Social Security at 62.

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