Understanding more about retirement benefits from Social Security.
When Should I Start Taking Social Security
I am in my early sixties and starting to seriously think about retirement. I have money in a corporate retirement plan and other savings but want to understand more about retirement benefits from Social Security.
Congratulations on starting to think about the financial aspects of retirement.
Once you are no longer earning wages, your retirement income will consist of three items - income from your retirement plan, income from your savings and retirement benefits from Social Security. You have control over the first two sources, but you have few choices for Social Security retirement benefits. In fact, since your level of benefits is based on your income history, the only choice you have for Social Security is when to start receiving benefits.
The answer to that question is not necessarily simple.
There are several factors to consider:
The first two questions are simple. The third question probably depends on your personal financial situation. The fourth question probably does not have an answer.
Your Social Security retirement benefits are based on your earnings history (highest 35 years' earnings) and assume you begin to receive benefits at your full retirement age. You can begin taking retirement benefits at age 62, but the amount you will receive will be reduced. Delaying starting to take benefits until age 70 will increase the benefit levels.
For 2015, the average monthly benefit for all workers is about $1,300 and the maximum benefit based on the highest earnings is about $2,650. Benefits can increase annually based on cost of living adjustments that have averaged about 2.5% over the past 10 years.
Full Retirement Age
Full retirement age is between 65 and 67, depending on the year you were born.
Consider Your Continuing Employment Plans
The impact of working between age 62 and full retirement age is divided into two segments. For calendar years before you reach full retirement age, your annual Social Security benefits will be reduced by $1 for every $2 you earn above $15,480. For the portion of the calendar year you reach full retirement age, the reduction is $1 for every $3 you earn above $41,400. For high earners, this would significantly reduce or eliminate the Social Security benefits while continuing to work.
Once you reach full retirement age, there is an adjustment in calculating the length of early retirement to reflect months when benefits were withheld. However, the actual reduction in benefits due to working is never recovered.
Impact of Starting to Take Benefits Before or After Full Retirement Age
If you elect to start taking benefits before reaching full retirement age, the reduction is 5/9 of 1% for each month for the first 36 months of early retirement and 5/12 of 1% for months 37 to 60 of early retirement.
If you delay taking benefits until after full retirement age, there is an 8% increase for each year you delay if you were born in 1943 or later. There are smaller increases if you were born before 1943.
Another way to look at this is to consider what the total benefits would be over your lifetime based on when you started receiving the benefits. This chart assumes a full retirement age of 66 and a monthly benefit of $1000 at full retirement age with no cost of living adjustments.
Everyone should consider their personal and financial situations when deciding when to apply for Social Security retirement benefits. However, there are some general conclusions that may make sense for you.
You should consider this matter carefully and be sure to understand all the implications of when you apply for Social Security benefits. Consider discussing this with your family, representatives from Social Security and your financial advisor.
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