Social Security may be about to experience one of its largest increases for cost of living since the 1980s, due to the recent increases in inflation. Some estimates show an increase as high as 6%, and the actual numbers will be released later in October.
Although Social Security is for all workers, it is complicated. Even simple questions about the best time to start benefits don’t have a simple answer that works for everyone. Here are some basics that can help you understand the impact Social Security benefits might have within the rest of your retirement picture.
Check your current record
To check your benefits, go to www.ssa.gov, click on “My Social Security” and then create an account.
There will be a record of your earnings, and estimates of your Social Security benefits for early retirement, full retirement and retirement at age 70. You’ll also find estimates of the amount of benefits paid to your spouse and other eligible family members as a result of your retirement, disability or death.
Social Security fraud happens, so the Social Security Administration makes the signing up a bit more difficult that one might expect. Just realize this is making it more difficult for the scammers too. You’ll need access to more than just your Social Security number. Some security questions might have answers you’d need to look up instead of remember. For example, they might ask exactly how much your last car payment was, or which streets you’ve ever lived on.
What is your “full” or “normal” retirement age?
The Social Security Administration’s language regarding “full” or “normal” retirement age is referring to the age at which full benefits can be received. Starting benefits before this age reduces the annual benefit, and after this age increases the annual benefit.
For persons born from 1943 through 1954, the full retirement age is 66. Those born in 1960 and later years have a full retirement age of 67. The higher retirement age is phased in for those born in 1955 through 1959.
Receiving benefits early
You can begin receiving Social Security benefits as early as age 62, regardless of your full retirement age. Taking benefits early reduces them permanently, based upon the number of months that you receive checks before you reach full retirement age.
Example: George’s full retirement age is 66, and starts benefits at age 62. There is about a 25% reduction George’s benefits. In an actuarial sense, early retirement gives people about the same total Social Security benefits over their lifetimes as retirement at the normal age, but in smaller amounts so as to take into account the longer period during which they will receive them.
In a personal sense, it all depends upon how long you live. It will take about 12 years of full benefits to recoup the foregone early benefits, so the break-even age is about 78.
Starting benefits after normal retirement age – A few years can may make a big difference.
Conversely, Social Security benefits increase by a certain percentage if you choose to delay receiving them. These increases will be added in automatically from the time that you reach your full retirement age until you start taking your benefits, or until you reach age 70. The percentage varies depending on your year of birth, but is 8% per year for those whose full retirement age is 66.
Working while collecting benefits
You may continue to work and still receive retirement benefits. However, exceeding certain limits for earned income before you reach normal retirement age will reduce benefits. Your earnings in or after the month that you reach your full retirement age will not affect your Social Security benefits.
Only wages or self-employment income are “earned income.” Interest payments, dividends, and capital gains not counted at all.
Special considerations for married couples
When a husband and wife each have paid social security taxes, the choices are more complicated and more important to understand. Each partner has a basic benefit plus a spousal benefit, but may only collect the larger benefit. They don’t have to claim at the same time. For example, one spouse might begin benefits early, while the other waits until age 66 or later to begin.
Spousal benefits are based upon the work record of a living spouse or ex-spouse. They are generally 50% of the worker’s benefit. Survivor benefits, based upon the work record of a deceased spouse or ex-spouse, are 100% of the deceased worker’s last benefit. There are a number of other differences to keep in mind too such as: the earliest age for spousal benefits is 62, and the earliest age for survivor’s benefits is 60. The spousal benefit at 62 is 35% of the worker’s benefit, and the survivor’s benefit taken at age 60 is 71.5% of the worker’s benefit.
Does taking Social Security mean retirement readiness?
At Garden State Trust Company, we can help assess the retirement readiness of clients as they decide if they are ready to fully retire or move to a work-optional lifestyle.
Social Security is generally intended as a supplement to other retirement income, but it can still play a major role in affecting how other assets are utilized. By using certain assets for income instead of others as you retire, you can preserve the tax-preferred status and growth of certain accounts, maximizing your resources.
If you are getting close to taking the retirement leap, but still wondering if you’ll be financially stable and won’t run out of money during retirement, we’d be pleased to provide a consultation to help you make an informed decision.
This information is not written or intended as tax or legal advice, and it may not be relied on for the purpose of determining your Social Security benefits or eligibility, or avoiding any federal tax penalties. You are encouraged to seek advice from your own tax or legal counsel. The content is derived from sources believed to be accurate.
