As you work your way through your prime earning years, the question of retirement eventually pops up, leaving you to think about a number of things.
One source of income that you will draw from is Social Security, and you may have a few questions about exactly when you should apply for it. Do you apply early, or wait a few years so you can take larger payments?
The answer to the question of when you should begin taking payments has a lot to do with your situation as you approach retirement, namely the things you know and the things you don’t know.
You already know how much money you have and if you’ll be drawing additional income from places like pensions and retirement accounts, but it’s harder to say just how long you’ll live, for instance, and that will affect how long you’ll receive payments from Social Security. Likewise, you may make the decision to go back to work on at least a part-time basis during your retirement years.
The full details regarding everything you need to know about social security and retirement can be found at the official Social Security Administration website, located at https://www.ssa.gov/, where you can create a profile but we’ll get into the basics of it all with this post.
First comes eligibility. If you were born between 1943 and 1954, this happens at age 66. For people born between the years 1955 and 1959, a retiree needs to be 66 years and 2, 4, 6, 8, or 10 months old, depending on the year. For anyone born in 1960 or later, that full retirement age is 67. Regardless of age, however, you can take earlier payments.
But should you?
Let’s take a look at the details involving early Social Security payments and figure out whether it makes sense for you to begin collecting earlier than normal.
The Uncertainty of the Retirement Years
Your retirement years should be among the easiest in your life, but it isn’t uncommon for that to not be the case for many Americans. Think about the times you’ve heard about retirees going broke or, at the very least, stressing about money.
It seems like there is always a story about someone having to move in with loved ones or take out loans just to make ends meet. By putting the right plans in place today, you may be able to reach the age where you can stop working.
Like I outlined above, the full retirement age is between 66 and 67, depending on when you were born, and it’s at that point that you can begin collecting the benefits you’ve been paying into for your entire life.
At least, that’s the case for many Americans.
On one hand, you can begin collecting as early as age 62. You will be able to pocket some, but not all of what you would be entitled to. At this age, collecting early reduces your benefit to 75% of what it would normally be. If you are a spouse looking to collect benefits, then that benefit is 35% rather than the standard 50%.
On the other hand, you stand to gain more from your benefits if you work beyond your full retirement age. You stand to make an additional 8% for every year beyond your full retirement age that you continue to work, up to age 70, so it may be beneficial to keep working past that age, depending on your situation.
You should also note that there are limits for those who work, but collect benefits while still under the full retirement age. This only lasts until full retirement age is reached but, as of 2016, $1 is deducted from every $2 earned above the annual limit, which is $15,720.
In the year that full retirement age is reached, $1 is deducted from every $3 but only during the months before your full retirement age.
What’s Considered Income
When calculating what you would earn in retirement, the SSA considers whether you work for yourself or an employer. In the case of the former, your income is your net earnings. This means that everything your business makes is taken into consideration.
If you spent your entire career as an employee, your earned income from whatever jobs you had are how your income is determined.
Earnings from areas like investments, interest, pensions, and annuities are not defined as income and will not count against any limits that you may be subject to.
There are a lot of other considerations that you want to keep in mind when it comes to retirement, especially if you are self employed. In some cases of self employment, the SSA might consider you retired even if you truly aren’t. For instance, as of 2016, if you are under retirement age for the entire year, you will be considered retired for any month you earn less than $1310 and did not perform substantial services in self employment.
Substantial services are typically considered by the either 45 hours or more devoted to a business or between 15 and 45 hours in a highly skilled (related to the managerial or technical needs of the business) occupation.
If services performed amount to fewer than 15 hours per month, they are not considered substantial.
The Social Security system as it relates to retirement can seem confusing to navigate, but the website has a wealth of information that can help you get started on your retirement planning. As always, I’m also here to help with any questions you might have, so feel free to get in touch with me and let me know how I can help you.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.