Thursday, March 28, 2024

When Should I Take Social Security

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What If I Stop Working In The Middle Of The Year

Clark’s Take on Delaying Your Social Security Benefit

There’s a special rule for when you work part of the year but then retire. Regardless of your total earnings, you’re still entitled to get Social Security checks for any month in which you’ve officially retired.

As an example, say you retire early at 63 and decide that you’re going to quit your $200,000-per-year job at the end of June. You’d forfeit all of your benefits for the first six months of the year because of your high earnings, but, starting in July, you could still get checks for the remaining six months even though your total annual earnings were well above the annual limit.

Spouses And Social Security

You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is 35% while the reduction for claiming your own benefit is 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.

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Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be 30% less for the remainder of their lifetime.

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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Early Benefits Can Still Pay Off

However, taking early benefits can still pay off despite the reduced monthly check. But youll want to be sure you budget for a reduced benefit.

No one can predict how long youll live, but if youre facing a potentially significant reduction in life expectancy and are short of income, taking Social Security early may be appropriate, Neiser says.

Married women are also good candidates for claiming early benefits because they are likely to outlive their husbands. Those widows then become eligible to receive the greater of either their benefit or their late husbands benefit.

However, this scenario works only if the husband does not claim his benefits early. By not claiming early benefits, the husband effectively increases the monthly benefit his wife eventually receives. So, youll want to calculate how filing early will affect your spousal benefit here.

Financial Benefits Of Working Longer

When Should You Take Social Security

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.

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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.

Im Retired And Turning 64 When Should I Take Social Security

Q. Should I wait before taking Social Security? My wife and I are retired. Shes 67 and Im turning 64. Financially, were in a good position. I collect a monthly pension of nearly $100,000 a year and our medical benefits are covered. My wife has been collecting Social Security since age 62. Our home is paid for, we have sizable IRAs and a joint brokerage account and we also have long-term care insurance. The pension and Social Security bring us reasonably close to paying for our lifestyle, yet we typically withdraw approximately $30,000 per year from our brokerage. If I take Social Security, we wont have to take from the brokerage account. My health is good. When is the best time to take the benefit? Also, will I get the higher cost-of-living increase if I delay collecting?

Trying to decide

A. Deciding when to take Social Security is an important decision that will affect your financial security for the rest of your life, and potentially the life of your spouse.

Congratulations on being financially well-positioned for your retirement.

Theres a lot that goes into deciding when to take Social Security, but here are some basics.

Well start with the when is best? question.

To that, beauty is in the eye of the beholder, said David Principe, a certified financial planner with SAGEbroadview Wealth Management in Morristown, noting that different people will have different ideas about the definition of best.

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What Other Factors Should You Consider When Deciding To Collect Social Security

Before you decide to collect Social Security based on your break even point, you should also consider how collecting early or delaying could impact the benefit your spouse receives.

Since the Social Security formula benefit is based on an individual’s 35 highest earning years, women often collect less in benefits than men because of career breaks during motherhood and overall lower lifetime earnings. However, the Social Security spousal benefit erases some of the disparity in Social Security earnings between men and women.

The spousal benefit is available to all spouses, regardless of whether the spouse has a work history or not . The spousal benefit is up to 50% of the higher earner’s benefit and in order for a spouse to receive the benefit, the higher-earner must be collecting their own benefit.

The Social Security administration automatically determines whether an individual would earn more in Social Security benefits if they collected on their own work record versus their partner’s work record.

For example, if the higher earner receives a $2,000 monthly benefit, the spouse is eligible to receive up to $1,000, depending on whether they choose to wait until full retirement age, says Kiner. For example, if someone collects the spousal benefit four years before full retirement age, their benefit will be 35% of the higher-earner’s benefits.

Bridge To Medicare At Age 65

Should you take your Social Security benefits at age 62?

Remember that while you are eligible for reduced Social Security benefits at 62, you won’t be eligible for Medicare until age 65, so you will probably have to pay for private health insurance in the meantime. That can eat up a large chunk of your Social Security payments.

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What If I Change My Mind

If you receive Social Security benefits at a reduced rate but then change your mind, you have the option of withdrawing your application within the first 12 months of receiving benefits and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. Be aware that you’re limited to one withdrawal per lifetime.

For example, let’s say you elected to receive early benefits at age 62 but then decided to go back to work at age 63. You could withdraw your Social Security application, pay back the years’ worth of benefits you received, go back to work, and then wait until your full retirement age to restart your benefit checks at a higher level.

Once you reach full retirement age, another option is to voluntarily stop benefits at any point before age 70 to receive delayed retirement credits . Benefits will automatically restart at age 70 at a higher amountâunless you choose to start taking benefits before then. Note that when you withdraw your application or stop your benefits after full retirement age, you must specify if your Medicare coverageâif you have itâshould be included in the withdrawal.

What Is The Cost Of Living Adjustment

Since 1975, Social Security benefits have been adjusted automatically each year, based on fluctuations in inflation, as determined by the Consumer Price Index For Urban Wage Earners And Clerical Workers. The Social Security Administration compares the average CPI-W in the three months of the third quarter of the current year to the same timeframe in the year prior. “The COLA increase is a valuable feature that keeps retirees from truly being tied to a ‘fixed income’ when managing expenses,” Rob Williams, managing director of financial planning at Charles Schwab, told CNET. The benefit increase is based on third-quarter changes to the Department of Labor Statistics’ Consumer Price Index. The CPI was 8.5% in July and dipped down to 8.3% in August before hitting 8.2% in September.

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Maximum Taxable Earnings Going Up

In 2022, the maximum earnings subject to Social Security taxes was $147,000. That is, workers paying into the system are taxed on wages up to this amount, typically at the 6.2 percent rate. In 2023, the maximum earnings will increase to $160,200, meaning more of a workers income will be subject to the tax. This adjustment is due to an increase in average wages in the U.S.

When Could Your Social Security Run Out

2022

In its research, J.P. Morgan Asset Management examined year-end portfolio values, with individuals claiming Social Security at various ages, using historical returns and inflation starting from 1966. In their study, they used the following assumptions: a starting portfolio value of $1.5 million an initial spending rate of $80,000 a 40% stocks and 60% bonds portfolio and historical Social Security cost-of-living increases. Here’s what they found:

A person who claimed Social Security at age 62 would have run out of money at age 90. A person who claimed Social Security at full retirement age would have run out of money at age 97 and a person who claimed Social Security at age 70 would have run out of money at age 100.

The research also concluded that a person with an average life expectancy of 81 should wait until at least full retirement age to claim Social Security while someone with a long life expectancy, of 88-plus, should wait until age 70.

If the markets are not so good, if you can at least hold on until your full retirement age , that’s probably going to still put you in a much better position, Carson said.

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You Can Work And Claim Social Security At The Same Time But Should You

Social Security is commonly seen as a source of retirement income. But you’re allowed to work and take Social Security retirement benefits or survivor benefits at the same time. If you do so before you reach full retirement age, though, Social Security may withhold part of your benefits.

Below we’ll cover how you can get Social Security benefits even while you’re still working. Learn how you can keep as much of that money as possible.

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.

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Effect Of Delaying Retirement Benefits

1Represents Full Retirement Age based on DOB January 2, 1960

2PIA = The primary insurance amount is the basis for benefits that are paid to an individual

That higher baseline would last for the rest of your retirement and serve as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesâit’s not always possible to wait, particularly if you are in poor health or can’t afford to delayâthe benefits of waiting can be significant.

Be aware that if you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you don’t sign up at age 65. If you start Social Security benefits early, you’ll automatically be enrolled into Medicare Parts A and B when you turn age 65.

Your annual Social Security statement will list your projected benefits between age 62 to 70, assuming you continue to work and earn about the same amount through those ages. If you need a copy of your annual statement, you can request one or view it online on the Social Security Administration portal.

Waiting For A Higher Spousal Benefit

When to Pull From Your IRA Before Claiming Social Security

The first common reason for filing early for your Social Security benefit is in a marital circumstance. If one spouse made substantially more than the other spouse, commonly in cases where one was a full-time parent for years, the Spousal Benefit may be higher than their own benefit, even if maximizing their own benefit to age 70.

In this circumstance, it may be advantageous to take the Spousal Benefit instead. However, the Spousal Benefit should be claimed only when the higher earner begins claiming on their own Social Security benefits, which is often their age 70.

This means that they will earn no Social Security benefit until then, and therefore should consider filing their own benefit as soon as they can: age 62. This allows them to receive their own smaller benefit during those years while waiting for the higher earners benefit to max out, then switching to the higher spousal benefit later when available.

If this benefit is around $500/month, thats nearly $50,000 that would be left on the table by not utilizing this strategy. Just make sure you understand the more intricate rules involved.

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What To Consider Before Filing For Social Security

A larger benefit check sounds great, but there are tradeoffs, and soon-to-retire folks should consider multiple issues before they decide one way or the other on when to file. If you really want to consider all the avenues, then youll have to think about your finances and longevity two issues that people have a hard time grappling with.

But heres the key trade-off: you can file early and take a reduced benefit, expecting that a shorter life span will mean you receive more now, or you could file at full retirement age or later and claim a bigger check, and eventually live long enough to claim more than the first approach.

Social Security is like longevity insurance, says Brent Neiser, a Certified Financial Planner and former chair of the Consumer Advisory Board at the Consumer Financial Protection Bureau. Its a stream of payments that will not stop throughout your life, so delaying your benefits to keep those payments as large as possible forms a helpful base to your retirement plan.

Neiser urges those who have not saved enough for retirement to use whatever means possible to postpone their Social Security benefits until after their full retirement age to help boost their future income.

You can use personal savings to help bridge the gap, but ideally you should plan to work a little longer , Neiser says.

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