Social Security: Timing is Everything
After paying into the system for decades, you may feel like cashing out. But the waiting game may help you win in the long run.
Every Dollar Counts
Before you make the decision when to start taking social security payments, weigh the options. Here’s how the numbers play out:
- Those born in 1937 or earlier can retire at 65 with full benefits.
- Retirement age with 100% of your benefits inches up two months at a time from 65 and 2 months to 65 and 10 months for those born between 1938 and 1942.
- If you took your first breath in 1943, full retirement age is 66; those born in 1960 or later will need to wait until age 67.
- Monthly retirement benefits rise along with your age.
- Holding off on benefits until 70 will boost your monthly payment to a whopping 132% of the amount you get at full retirement age.
- Early retirement benefits can be drawn at 62. But note that the percentage you’re entitled to at that time doesn’t rise over time.
- Cost of living adjustments are based on that figure too. Likewise, spousal benefits.
- Studies show that collecting at 62 can shave 30% off your lifetime total.
- People are living longer nowadays. Delaying payments may provide welcome income when you’re in your 80s and 90s.
Working Hard or Hardly Working?
If you’re considering part-time or freelance work once you retire from a full-time job, Uncle Sam may take a cut from your social security benefits. Some calculations:
- Currently the earnings limit for those collecting social security is $15,120 a year, or $1,260 a month. (Start counting after you begin drawing benefits; money earned beforehand doesn’t apply to this calculation.)
- If you earn more than this amount, your uncle takes back $1 of every $2 — a full half — of your social security check for the amount above the cutoff.
- But in the year you reach full retirement age, the allowed earnings jump to $40,080.
- The sky’s the limit on earnings once you reach full retirement age; no penalty whatsoever.
- And once you reach full retirement age, Uncle Sam kindly increases your benefits to account for benefits withheld due to previous earnings. So in the end you don’t really lose out.
- No worries about hefty investment income; there’s no earnings limit and no reduction in your social security check whatever your account statement says.
Married . . . with Benefits
Scope out the ways to optimize income as a couple. Investigate these areas for a possible boost to earnings:
- Certain so-called File and Suspend strategies allow one spouse to draw spousal benefits while deferring his/her own so they can grow.
- If you make less money than your spouse, it could add to the pot if you take your benefits early and switch to your spousal benefit once you reach full retirement age.
- Both you and your better half should coordinate the dates you begin getting checks so that neither one of you is forced to take a spousal benefit early at a reduced level.
- Survivor’s benefits are based on the amount of your social security check. Taking benefits early will reduce your spouse’s benefits.
- A Start-Stop-Start strategy may allow you to recoup the money you lost by taking benefits at 62.
- First take the reduced benefit at 62.
- Stop collecting at age 66.
- Take increased benefits at age 70, giving your new social security paycheck a big boost.
This is not your grandfather’s social security system. The rules can be complicated, so it’s worth it to go over the possibilities with your financial advisor as you consider the role it may play in your retirement planning.