Here’s a topic I haven’t written too much about – Social Security. It’s probably one of the most confusing things in all of finance.
I frequently get questions like:
“Should I take Social Security right away?”
“Should I wait as long as possible to take Social Security?”
My answer? It depends. Social Security is based on your lifetime earnings. The more money you make during your working years the larger benefits will be. The earliest age anyone can take Social Security is 62. If you take it at 62 it will be less than what your benefits will be a full retirement age (FRA). Now if you were born before 1938, FRA is 65 (I think mine is age 95!). For you youths born between 1943 and 1954, FRA is 66. Anyone born after 1960 it’s 67.
Keep in mind that there won’t be much of a difference in benefits whether you retire at 62 or FRA. So do you take reduced benefits at 62, or wait for the larger payout? If you take it early, the payout is permanently reduced. Spousal benefit will play a big role. If you think your spouse may outlive you, and by a good-sized margin, it’s probably advisable to have the older spouse delay Social Security benefits so they can avoid a reduction in monthly payments.
It Can Pay To Delay
If you are still working past your FRA, benefits will increase because you are adding earnings on, and for each year you delay past FRA, you get a percentage increase. Usually about 8 percent annually. Check with Social Security for exact details for your particular age.
You definitely will want to sign up for Medicare when you reach age 65, regardless of whether you are taking Social Security benefit payments. The cost will go up if you wait. You may want to delay Medicare if you have a job where health benefits are being received. After age 70, there is no increase in benefits, so you should sign up at that point.
Have you considered your life expectancy? If your family all lived to reach their 90s, then this could factor into the decision. If you don’t expect to reach average life expectancy, you will not benefit from delaying your benefits. Less time and less money. You will want to consider you earned income and your tax situation. Plus, Social Security benefits are subject to annual cost of living increases.
If you are single and will work beyond your FRA, this is an easy decision. You wait until FRA or later to get the full benefit or even more.
Let’s say you are under 65 and have income in 2013 over $15,120, the decision gets even easier. If you claim benefits it will trigger a reduction, where one dollar of Social Security retirement benefit is withheld for every two dollars earned income that exceeds this limit. Makes not sense to take it early if you’re in this situation, wait for FRA.
If you’re retired or close to retirement, and have Social Security questions, call me at (859) 225-2596 or shoot me an email at firstname.lastname@example.org. I’d love to help.