When to start Social Security benefits is a complicated decision based upon your circumstances. Benefit decisions is an area well-worth seeking professional help to run different scenarios to help you determine the best time for you to begin and how to maximize your benefits. The decision may not only affect you, but it could also affect your spouse, if your spouse is eligible for spousal benefits or survivor’s benefits.
If you begin benefits early at age 62, your benefits are permanently reduced a fraction of a percent for each month before your full retirement age. If your full retirement age is 67, and you chose to take benefits early at 62, your retirement benefit would be reduced 30%, while an eligible spouse’s benefit would be reduced 35%. Alternatively, by delaying benefits until after full retirement age, you can earn delayed retirement credits. This means you can earn up to 8% a year, increasing your benefit up to 32% by waiting until age 70.
If you are still working and earn more than $15,720, annually, it is usually better to wait until your full retirement age to collect benefits. If your income exceeds that amount, $1 of benefits is withheld for every $2 you earn above the threshold amount. If you are full retirement age in 2015, you can earn $41,880 in the period up to the month before your birthday, without a reduction in benefits. If you earn more, your benefits are reduced by $1 for every $3 you earn above $41,880. Once you reach full retirement age, your income will not reduce your benefits.
Generally, if you have money coming in that covers your living expenses and you are not having to liquidate your retirement savings, it is better to wait until full retirement age to begin benefits. However, if you are tapping into your retirement savings, then it may be beneficial to begin Social Security benefits.
While you can certainly delay benefits to increase your monthly amount, in many scenarios we’ve run for clients, we have seen about a 12 ½-year payback for delaying benefits from full retirement age until age 70. For example, if your full retirement age is between 66 and 67 and you delay taking your benefits until 70, you would have to live until 82 ½ to recoup the money you could have had access to from full retirement age through age 70. Furthermore, it is important to remember, Social Security generally does not have a beneficiary. If you have delayed benefits in hopes of having more money later, and you die before you turn 70, you will get nothing. Your widow or widower may be eligible to receive a slightly larger Survivor’s Benefit, but the payback period to recoup the benefits that could have earned will still be substantial. At full retirement age, if you do not need to rely on Social Security for living expenses, you may consider taking the benefit and investing it.
The spousal benefit was designed to provide for a spouse who does not work outside the home or who has earned significantly less during his or her career. When a worker files for retirement benefits, the worker’s spouse may be eligible to receive up to 50% of the worker’s benefit. Maximizing the spousal benefit isn’t simple. When you choose to claim benefits and the age difference between spouses can affect how much you are eligible to receive, especially when coupled with strategies, such as file and suspend.
Additionally, some couples have to pay income taxes on their Social Security benefit. Up to 50% of your benefits may be subject to income tax if half of your Social Security benefit plus your modified adjusted gross income exceeds $25,000 for an individual, or $32,000 if married and filing jointly. If your provisional income exceeds $34,000 for single, or $44,000 if married filing jointly, up to 85% of your benefit is taxable.
If you have questions regarding how your situation affects your Social Security benefits, experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
