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.
What Is The Social Security Break
RETIREMENT planning takes both time and strategy.
There are a variety of approaches you can take to ensure your retirement is filled with leisure and is hassle-free.
Social Security is based on your highest 35 years of earnings and differs depending on those and when you choose to start receiving benefits.
Typically, the benefits are meant to replace about 40 percent of their pre-retirement income.
Many decide to take their Social Security benefits at 62 even though the amount reduces significantly with early withdrawal.
While others wait until their full retirement age, 70, as their benefit amount increases substantially.
New Social Security Break
Screenshot of break even calculator
Social Security Intelligence, a company dedicated to simplifying Social Security, releases a new tool to help determine the optimal timing for claiming benefits
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While You Can Start Collecting Benefits At Age 62 Should You Collect Early Or Delay
For many elderly people, Social Security benefits make up one of their primary sources of income in retirement. For half of seniors, Social Security comprises about half of their retirement income, according to the Center on Budget and Policy Priorities. Some studies estimate that without Social Security, between 30% and 40% of senior citizens would be considered below the poverty line.
The age at which you decide to collect your Social Security benefits has a big impact on how much you’ll earn from the program over time because the longer you wait, the higher your monthly payout will be.
“Don’t just call Social Security and apply at age 62. Everybody has options. A married couple could receive $1 to $1.5 million in benefits over their lifetime. And single people could maybe half of that,” says Marc Kiner, a CPA at Premier Social Security Consulting. “And do not assume that Social Security will review your options with you.”
Select spoke to Kiner and Jim Blair, the lead consultant at Premier, about some of the factors you should consider when deciding when to apply for Social Security benefits.
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Where To Access A Free Break Even Calculator For Social Security That Solves These Problems
After several years of personal disdain for break even calculators, Ive moderated my thoughts. As long as an individual understands the limitations of a break even analysis that weve discussed above, I do believe there is a benefit in using a break even calculator as a part of your overall decision.
For that reason, weve recently had a one-of-a-kind break even calculator for Social Security built for our community. There is no charge for you to use this calculator and simply requires you to set up a free account.
This break even calculator for Social Security addresses the limitations that most other break even calculators available today pose. With our free tool, you can compare various filing ages down to the month. Weve also built in the COLA adjustments to make sure this calculator is as close to real life as possible.
To access this free calculator, . Theres no log-in, email address, or anything else required to use it.
Hopefully, these thoughts on a break even calculator for Social Security will help you build a more informed retirement plan. If you still have questions, you could leave a comment below, but what may be an even greater help is to join my.
Its very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time Ill even drop in to add my thoughts, too.
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Financial Engines Social Security Retirement Calculator
Description. This retirement planner guides the user through the following four steps: Whos included on your retirement journey? When do you plan to start Social Security? Can you get more from Social Security? Your Social Security Plan. The tool highlights claiming strategies that will maximize the users lifetime Social Security benefits. The planner had over 80,000 visitors in 2015 .
User inputs. In step 1, the user enters name, date of birth, annual salary, gender, life expectancy relative to average, and marital status . A married user enters his or her spouses information as well. Step 2 presents estimated annual Social Security benefit amounts for each claiming age from 62 through 70, with age 65 preselected as the default claiming age. By clicking on Edit information, the user can select an alternative claiming age and is also able to enter actual benefit estimates directly from SSAs Retirement Estimator or the users my Social Security account.
Advantages. Users can create and compare custom strategies for one- or two-person households in various marital and survivor statuses. The action plan provides the specific claiming date that would maximize lifetime Social Security benefits for the selected life expectancy assumption. The initial selection and the proposed strategy are shown side by side to highlight the effects of different claiming ages on annual and lifetime benefits.
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.
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What If I Take Benefits Early
If you choose to take your own Social Security benefit before your full retirement age, be aware that the benefit is permanently reduced by five-ninths of 1% for each month. If you start more than 36 months before your full retirement age, the worker benefit is further reduced by five-twelfths of 1% per month for the rest of retirement.
For example, let’s assume you stop working at age 62. If your full retirement age is 67 and you elect to start benefits at age 62, the reduced benefit calculation is based on 60 months. So, the reduction for the first 36 months is 20% and then another 10% for the remaining 24 months. Overall, your benefits would be permanently reduced by 30%.
Should I Wait To Start My Social Security Benefits
Presented by Tim Weller
The first step in making your decision is to determine your full retirement age the age at which you can collect your full benefits. For workers born between 1943 and 1954, the FRA is 66 for those born later, the FRA gradually increases to age 67. Claiming benefits prior to your FRA can reduce your monthly payment by as much as 30 percentbut you will receive benefits for a longer period. If you postpone claiming benefits beyond your FRA, your social security payment will increase by a certain percentage, depending on your year of birth, until you reach age 70.
Its important to consider your options carefully. The decision to claim benefits early can result in a lower standard of living for the rest of your life. And claiming later can mean more financial security for your surviving spouse.
The benefit reduction incurred by claiming early is permanent. If you elect to start receiving benefits early, your benefits will still be increased annually by cost-of-living allowances. But despite social securitys annual inflation adjustment, your payments may never equal the benefit that you would have received by waiting until your FRA.
What timeline is best for you? You can crunch the numbers using AARPs Social Security Benefits Calculator, available at www.aarp.org/work/social-security/social-security-benefits-calculator.
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A Comparison Of Free Online Tools For Individuals Deciding When To Claim Social Security Benefits
The authors are with the Office of Retirement Policy, Office of Retirement and Disability Policy, Social Security Administration.
Acknowledgments: Brian Alleva, Tom Hungerford, Natalie Lu, Barbara Smith, and David Timmons provided helpful input and suggestions. Special thanks to Anya Olsen for her extraordinary support.
The findings and conclusions presented in this note are those of the authors and do not necessarily represent the views of the Social Security Administration.
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What Is Breakeven Age For Collecting Social Security
So there is a trade-off between when you start collecting social security and the size of your benefit but what does this trade-off look like? The following table is based on an example provided by the Social Security Administration. It assumes a person would be entitled to a $1,300 benefit upon reaching full retirement age at 66 years and 4 months.
If you start collecting benefits at this age.
your monthly benefit will be
As you can see, each year you delay collecting raises the benefit. The amount of those increases varies, but on average the dollar amount increases by 7.4 percent each year. However, it would be inaccurate to liken delaying to earning a 7.4 percent return on your money because that doesnt take into account that the earlier you start collecting, the more years worth of benefits you get.
In fact, this is the heart of the dilemma: you will come out ahead at first by starting to collect benefits earlier, because you will receive those benefits for more years. However, if you live long enough, eventually the larger benefits you would be entitled to if you waited longer would catch up with the amounts you would have earned by collecting earlier.
Heres an example: Using the above figures, suppose you could start collecting a $953 monthly benefit at age 62. By the time you reach age 70, you will already have collected a cumulative total of $91,488 in benefits.
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Other Factors To Remember
When you are calculating your break-even age, look at other assets that you can collect.
For example, if you have a 401 or pension through your work, or an individual retirement account, this may impact when you choose to cash in on your Social Security.
Other assets to consider are annuities, a taxable brokerage account, savings accounts, certificates of deposit or even all of the above.
If you are unsure of how to calculate the best plan for you and your family, it could be helpful to speak with a financial advisor and explore all of your options.
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 youll 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.
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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.
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.
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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 persons 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 workers pre-retirement income. This value is dependent on each individuals 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
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.
What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit for your own benefits . For example, say you were born in 1960, and your full retirement age is 67. If you start your benefits at age 69, you would receive a credit of 8% per year multiplied by two . This means your benefit would be 16% higher than the amount you would have received at age 67.
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Other Factors To Consider
When planning for retirement, however, theres more to consider than just dollars and cents. You could pocket the most money in the long term by waiting to start your benefits, but only if you live past the break-even point.
Thats where other factors such as your physical condition and family situation come into play. Suppose you reach claiming age in poor health. Do you expect to live long enough to make up for the payments youd forgo by delaying? On the other hand, is your spouse going to be depending on your benefits after you die? The tradeoff for starting your payments early could be lower survivor benefits for your mate.
Other income, or assets such as a pension or IRA, might affect your claiming decision. Perhaps you like your job and want to keep working well into your 60s, or you can afford to live on your savings while you delay Social Security and boost your eventual benefit. On the flip side, if youre unable to work and need the money, collecting Social Security benefits early could help you make ends meet.
A financial adviser can help you weigh the pros and cons to determine what option works best for you.
Keep in mind