Factor In Mortality And Marriage
Of course, the trick to coming out ahead by starting to collect social security later is to live long enough to reach the breakeven age.
Whether or not you will be able to do that, though, is impossible to know. The Social Security Administration does provide a life expectancy calculator that can provide some general guidance. For example, according to this calculator, a 62-year-old male can expect to live to age 83.6. In the example given earlier, the breakeven age for coming out ahead by delaying collecting social security was 80, so on average it would make sense for a person in that situation to delay collecting social security to earn the maximum benefit.
However, the life expectancy calculator is based on average life spans. Your health and family history are also important considerations in estimating how your life span is likely to relate to the average.
It also makes a difference if you are married. Survivor benefits for spouses are increased if you delay when you start to collect social security. So, if you are married, there is a better chance that at least one of you will live long enough to reach the breakeven age. According to the Social Security Administration, a married couple at age 65 today has a 50-50 chance of at least one spouse living till age 90.
Defining The Social Security Break
Your Social Security break-even age represents, in theory, the ideal point in time to apply for benefits in order to maximize them. Remember, you can begin taking your benefits at age 62 at a reduced amount. But by taking your benefits at this earlier age, youll receive more Social Security checks over your lifetime assuming you reach your desired life expectancy.
On the other hand, delaying your benefits past full retirement age increases them year over year until you reach age 70. Currently, the full retirement age for most people is either 66 or 67 years old, based on Social Security Administration guidelines. If you wait until age 70 to start claiming your benefits, youd receive 132% of your regular monthly benefit amount. So the trade-off is receiving fewer checks from Social Security but the ones you do get would be larger.
Your break-even age is the point at which youd come out ahead by delaying Social Security benefits. Your actual Social Security break-even age can depend on the number of benefits youre eligible to receive, your tax situation and things like how inflation might affect the purchasing power of your benefits.
Finally How Does The Stock Market Figure Into The Equation
Generally speaking, the U.S. stock market has been on a record-setting run, but its ongoing performance is never a sure thing. What goes up can go down eventually, and a declining portfolio could have an impact on a retirees cash flow needs. If a retiree gets to a point where the declining value of their portfolio cannot sustain their cash flow requirements, then it would be an appropriate time to consider taking Social Security benefits earlier than previously planned.
Yes, deciding when to take Social Security is complicated, but its still a decision that is often integral to retirement planning. Its also a decision that many retirees seem to disregard. According to Employee Benefit Research Institutes 2018 Retirement Confidence Survey, only 23% of workers try to maximize their benefits by planning when to claim Social Security.
So, once youve determined your break-even age, I encourage you to take the next steps: Consider your individual circumstances, get some guidance, and make a plan. It could make a difference of tens of thousands for you over the years.
Don’t Miss: How To Report Social Security Card Lost
How To Calculate Your Social Security Break
Deciding when to take Social Security retirement benefits is important because it can directly affect your benefit amount. While you can technically start taking benefits as early as 62, youd receive them at a reduced amount. On the other hand, you could delay taking benefits up to age 70. Calculating your Social Security break-even age can help you decide when the best time is to begin taking benefits. You can do that using a Social Security break-even calculator. Additionally, it may be a good idea for you to consult with a financial advisor about when its best for your particular situation to begin receiving Social Security.
When To Take Social Security Benefits
You can elect to receive Social Security benefits starting at age 62 or as late as age 70, though your full retirement age depends on the year when you were born. For example, your FRA is 67 if you were born in 1960 or later. If you elect to take your benefit before it, then your Social Security income will be reduced by as much as 30%. Although the total number of payments received will be higher than if you had waited until your FRA, your total lifetime payment could be lower.
When you reach your FRA, you receive a full benefit based on the amount of Social Security tax paid into the system through your lifetime, up to a maximum monthly benefit amount. Although fewer total checks are received, your total lifetime payout may be higher.
Those who are able to defer taking Social Security income until after their FRA are given a delayed retirement credit each year past that age until age 70, equivalent to an annual 8% increase for people born in 1943 or later. Waiting until age 70 results in the fewest number of checks received, but delivers a much higher monthly benefit.
To determine the most appropriate age for you to start taking benefits, you need to calculate your Social Security breakeven age.
When you elect to take benefits early, you make a permanent choicemeaning that your benefits are reduced over the course of your lifetime, not just until your FRA.
Recommended Reading: Can I Collect Social Security At 60
Do You Know Your Social Security Break
What is the perfect age to start collecting Social Security benefits? Its a question many seniors struggle with. Claiming early and claiming late both have benefits, the key is figuring out what age is best for you.
Before making this important decision, consider calculating your Social Security break-even age. This is the ideal age at which to apply in order to maximize your benefits. SmartAsset posted a great article on why you may want to calculate your Social Security break-even age before making any critical decisions.
The article explains how the Social Security break-even calculator works and what you should take into consideration when deciding the best age for you to apply. It reminds you that its not all about the money. The calculator does not consider your life expectancy and wellness level, cost-of-living adjustments, taxes, or inflation. The break-even calculator also does not factor in additional retirement income such as pensions or 401 plans.
The Seniors Trust is working to protect and expand Social Security benefits for American seniors. Our mission is to pass the Social Security Expansion Act, which will secure the long-term solvency of Social Security. Its crucial that we make sure Social Security is there for todays seniors and tomorrows retirees. They earned it.
Please support this mission by signing The Seniors Trust petition calling on Congress to enact this vital piece of legislation.
Weigh Taking Early Retirement Benefits Against Full Retirement Benefits
A Tea Reader: Living Life One Cup at a Time
People nearing retirement can implement a number of strategies to cover living expenses during their post-working years. Although retirement plans, such as 401s and IRAs, are part of a retirement strategy for many, Social Security benefits are the most common source of income among retirees. The benefit is a guaranteed amount that you can start receiving as early as age 62, or you can wait until 70 to receive the highest monthly payment.
Various factors impact how much Social Security income you get when you start claiming benefits. To determine the optimal age to start taking benefits, you need to calculate your Social Security breakeven age to ensure that you balance payments versus longevity.
Recommended Reading: South Jordan Social Security Office
Cost Of Living Adjustment
One reason that many people decide to file as early as possible is due to the erroneous idea that COLA wont apply to them until they file for benefits. The Social Security Administration factors in COLA whether you collect your benefit or not. Listen in as Devin and I discuss how COLA plays a part in your Social Security benefits.
What If I Continue Working In My 60s
Many people whose health allows them to continue working in their 60s and beyond find that staying in the workforce keeps them young and gives them a sense of purpose. If this sounds like something youâd like to do, know that working after claiming early benefits may affect the amount you receive from Social Security. Why? Because the Social Security Administration wants to spread out your earnings so you donât outlive them. If you claim Social Security benefits early and then continue working, youâll be subject to whatâs called the Retirement Earnings Test.
If youâre between age 62 and your full retirement age, and youâre claiming benefits, you need to know about the Earnings Test Exempt Amount, a threshold that changes yearly. For 2022, the Retirement Earnings Test Exempt Amount is $19,560/year . If youâre in this age group and claiming benefits, then every $2 you make above the Exempt Amount will reduce by $1 the Social Security benefits you’ll receive.
Contrary to popular belief, this money doesnât disappear. It gets credited back to you – with interest – in the form of higher future benefits. You may hear people grumbling about the Social Security âEarnings Taxâ, but itâs not really a tax. Itâs a deferment of your benefits designed to keep you from spending too much too soon. And after you hit your full retirement age, you can work to your heartâs content without any reduction in your benefits.
You May Like: Disadvantages Of Social Security Disability
Should You Use A Break Even Calculator For Social Security Big Picture Retirement
Can a Social Security break even calculator help you decide the best age to file? Yes! Just knowthe results of this calculation alone cannot be the deciding factor when choosing the best filing age. Deciding when to file for Social Security benefits requires the examination of multiple pieces of information. A Social Security break-even calculator can help with the decision, but it can never be the sole factor used if you are serious about making a well-rounded decision. Before using this calculator, Id highly encourage you to read my article on the right way to use a Social Security break-even calculator. Access the break-even calculator here https://www.socialsecurityintelligence.com/calculators/social-security-break-even-calculator/ Although this show does not provide specific tax, legal, or financial advice, you can engage Devin or John through their individual firms. Contact Devins team at https://www.carrolladvisory.com/ Contact Johns team at https://www.rossandshoalmire.com/
Social Security For The Disabled
People who are disabled, are dependents of retired or disabled workers, or are surviving spouses/children may also receive benefits. Note that this is supplementary information and that the Social Security Calculator only provides calculations for retirement benefits.
The SSA’s definition of disability refers to total disability, so partial or short-term disabilities are not qualified for benefits. Under the SSA’s rules, a person is disabled only if they meet all of the following conditions:
- They cannot do work they did before
- The SSA decides that they cannot adjust to other work because of their medical condition
- The disability has lasted or is expected to last at least one year or to result in death
Benefits usually continue until beneficiaries are able to work again. Disability beneficiaries that reach full retirement age will have their benefits converted into retirement benefits, with the amount remaining the same. It is against the law to receive both disability and retirement benefits at the same time.
Social Security Disability Insurance
Supplemental Security Income
In some situations, it is possible to receive both SSDI and SSI. This usually happens when a qualified application for SSDI is granted low enough an SSDI benefit to make the applicant also eligible for SSI.
You May Like: Social Security Disability Earnings Limit 2022
How Does A Break Even Calculator For Social Security Work
The basic premise of a break even calculator is based on the way Social Security benefits are calculated, where the earlier you file the lower your benefit will be. Waiting longer can get you a higher benefit amount but by filing at a younger age, youll receive more benefit checks in total.
This is why you need to understand the break even point. If you file later, your benefit will be higher. When compared to the same life expectancy as filing early, youll receive larger checks but for fewer months.
The age at which filing early versus filing later results in the same amount of cumulative payments is your break even age.
For example, lets use a very basic benefit amount that doesnt include any cost of living adjustments. Lets assume that your full retirement age benefit is $2,000:
- If you file at 62 you would receive $1,400
- If you wait until age 70, you would receive $2,480
Using simple math you can see that the total benefits you would receive in each scenario would be equal, or break even, at 80 years and 4 months. For every year you live beyond this age, the choice to file later is the winner as youll have more money by waiting to claim benefits than you would have if you filed early.
But what if you dont expect to live until 80 years and 4 months? Youd actually be better off by filing for benefits sooner.
Social Security In The Us
Before Social Security , care for the elderly or disabled in the U.S. wasn’t a federal responsibility if they weren’t cared for by family, it fell into the hands of municipalities or states. This changed in 1935 when the Social Security Act was first established in the U.S. by President Franklin Roosevelt. The first taxes were collected starting in January 1937, which enabled monetary assistance to qualified Americans with inadequate or no income. Originally, SS was just a program that paid out retirement benefits, but a 1939 change added survivors benefits for a retiree’s spouse and children. In addition, in 1956, disability benefits were added.
Today, SS in the U.S. plays a very important role in keeping a lot of older Americans out of poverty. For most Americans in retirement, it is their major source of income, and for a significant percentage, it is their only source of income, even though SS was never intended to be a full replacement of income. On average, SS pays lower-wage earners higher relative benefits than higher-wage earners. In addition, lower-wage earners tend to pay less tax and are more likely to receive social insurance disability income and survivor benefits. SS is sometimes referred to as Old Age, Survivors, and Disability Insurance .
Social Security Facts
Recommended Reading: Is Social Security Tax Free
Social Security For Retirement
The biggest determinant of retirement benefit amount is lifetime earnings since the benefit is based largely on the average of a person’s 35 highest-earning years. Because the SS tax is regressive, in retirement, lower-income earners will have a higher portion of their SS retirement benefits paid out in relation to their lifetime earnings than higher-income earners. Another important determinant of benefit amount is the age at which a person applies for retirement benefits.
SS is designed to replace about 40% of the average American worker’s pre-retirement income. This value is dependent on each individual’s work history higher-income earners will receive larger SS checks than lower-income earners, but the check will be a smaller percentage of their pre-retirement income. SS is not intended to be a sole source of retirement income, and as such, it is advisable to have other forms of income in retirement. This can take the form of anything from rental property income to annuities, mutual funds, or even tax-shielded retirement plans such as a 401 and/or IRAs.
Full Retirement Age
Retirement Benefits While Working
When to Apply for Social Security Retirement Benefits
- The immediate need for cash
- Life expectancy
- Relative age, income, and health of spouse
Social Security Credits
Receiving Retirement Benefits Outside of the U.S.
How To Calculate When To Take Social Security
Break-even calculators have been used for years to help people decide when they should file for Social Security. The way they work is that they break down your life expectancy and your benefit to a point in your life when the total of the lower benefit amounts equals the total benefits that you would have received if you had waited to take your benefits at the full retirement age or later.
While the break-even point is an important factor in determining when to file for Social Security, there are other considerations especially if you are married or will have survivor benefits. Listen in to hear why it is so important to factor in other considerations if you are married or have dependent adult children. Learn how to use the data point of the break-even calculator to make better decisions in retirement.
Read Also: Social Security Taxable Benefits Worksheet 2021
How To Calculate The Break
When should I take Social Security?
I may hear that question more than any other. Its often followed by a related question: If I start taking Social Security at 62, Ill collect earlier but Ill receive a smaller amount. If I wait, Ill collect more but for fewer years. What is my break-even age?
Social Security is typically an important part of a retirees income plan, so it makes perfect sense to do everything possible to maximize that benefit. For some folks, taking it early at 62 makes sense, but for many others, putting it off until full retirement age or beyond, until age 70 could be their best bet. Your Social Security break-even age is one tool to help you make your decision.
Calculating Your Social Security Break-Even Age
The timing of your Social Security benefits is important it could make a difference of tens of thousands of dollars in your retirement income over your lifetime. And though there are many factors to consider when evaluating Social Security benefits , its fairly simple to calculate your Social Security break-even age. Lets use an example to illustrate the calculation:
Essentially, Jeff forfeited $12,000 , but gained $80 a month. To find out his break-even age, Jeff would divide $12,000 by $80 a month, which comes out to 150 months, or 12½ years. So, if Jeff waits for one year to start taking his Social Security benefit, it will take him 12½ years to get back to even.