Is 62 your lucky number? If you qualify, it is the earliest age you can begin receiving Social Security retirement benefits. If you decide to collect benefits before your full retirement age (ranging from 65 to 67, depending on the year you were born), you'll be in good company. According to the Social Security Administration (SSA), approximately 73% of Americans choose to receive their benefits early on. (Source: SSA Annual Statistical Supplement, June 2007)
Although collecting early retirement makes sense for many people who are a major drawback considering: If you start collecting benefits early, your monthly pension benefit will be permanently reduced. So before you put down the tools of your trade and pick up your first Social Security check, there are some factors you should consider before deciding whether to start collecting benefits early.
What will your retirement beneficiaries be?
The exact amount of your Social Security retirement benefit is based on the number of years you worked and the amount you have earned. Your benefit is calculated using a formula that takes into account your 35 highest earning years. If you have earned little or nothing in several of those years (if you left the workforce to raise a family, for example), it can be to your advantage to work as long as possible because you have the option to substitute a year of lower earnings with a higher, potentially resulting in a higher retirement beneficiaries.
Each year you receive a Social Security Statement from SSA, which summarizes your earnings history and estimates the benefits you can receive based on these resources.
If you begin collecting retirement benefits at age 62, monthly benefit check will be 20% to 30% less than it would be at full retirement age. The exact amount of reduction will depend on the year you were born. (Conversely, you can get a higher payout by delaying retirement past your full retirement age, the government increases your payout every month you delay retirement, up to 70 years old.)
But even if your monthly payment will be 20% to 30% less if you begin to collect retirement benefits at age 62, you may receive the same or more total lifetime Social Security benefits that you would have had you waited until full retirement age To start collecting benefits. This is because even though you will receive less money per month, you can get more benefit checks.
The following chart shows how much an estimated $ 1,000 monthly benefit at full retirement age would be worth if you began taking a reduced benefit at age sixty-second
Birth Year
Full retirement age
Benefit
1937 and earlier
65 years
$ 800
1938
65 years, 2 months
$ 791
1939
65 years, 4 months
$ 783
1940
65 years, 6 months
$ 775
1941
65 years, 8 months
$ 766
1942
65 years, 10 months
$ 758
1943-1954
66 years
$ 750
1955
66 years, 2 months
$ 741
1956
66, 4 months
$ 733
1957
66 years, 6 months
$ 725
1958
66 years, eight months
$ 716
1959
66 years, 10 months
$ 708
1960 and later
67 years
$ 700
** Source: Social Security Administration
Have you thought about your life?
Is it better to take reduced benefits at age 62 or full benefits later? The answer depends partly on how long you live. If you live beyond your break-even age, the total value of your retirement benefits "taken at full retirement age starts to outweigh the value of reduced benefits taken at age sixty-second
You generally have reached your breakeven age around 12 years from throughout your retirement. For example, if your full retirement age is 66, you should reach your breakeven age 78th If you live past this age, you will end up more total lifetime benefits by waiting until full retirement age to start collecting, or else can collect benefits at age 62 better. The SSA has a breakeven calculator on its website to learn more.
Obviously nobody can predict exactly how long they will live. But by taking into account your current health, diet, exercise, access to quality medical care, and family medical history, you may be able to make a reasonable assumption.
How much income you need?
Another important piece of the puzzle is to look at how much retirement income you need, partly based on an estimate of your retirement expenses. If there is a large gap between your expected expenses and your projected income, waiting a few years to retire and begin collecting Social Security benefits can improve your financial outlook.
If you continue to work and wait until your full retirement age to start collecting benefits, your Social Security monthly benefit will be greater. What's more, the longer you stay in the workforce, the greater amount you will earn and have to put into your overall retirement savings. Another plus is that Social Security's annual cost of living increases are calculated using your initial years of advantages as a base the higher base, the greater your annual increase.
Do you plan on working after age 62?
Another important factor in your decision is whether or not you have plans to continue working when you start collecting Social Security benefits at age sixty-second This is because the income you before full retirement age may reduce your Social Security retirement benefit. Specifically, if you are under full retirement age for the entire year, $ 1 in benefits withheld for every $ 2 you earn above the annual earnings limit ($ 13,560 in 2008).
Example: You start collecting Social Security benefits at age sixty-second You continue to work and your job pays $ 30,000 in 2008. Your annual benefit would be reduced by $ 8,220 ($ 30.000 minus $ 13.560 divided by 2).
A higher earnings limit applies in the year you reach full retirement age, and the calculation is different for-$ 1 in benefits is deducted for every $ 3 you earn over $ 36,120 (in 2008). Once you reach full retirement age, you need not worry about your earnings. You can earn as much as you want without affecting your Social Security benefit.
Note: If your monthly benefit is reduced in the short term because your earnings, you will receive a higher monthly payment later. This is because the SSA recalculated your benefit when you reach full retirement age and leave out the month in which your benefit was reduced.
Are you eligible for retirement health benefits?
Even if you begin to collect Social Security benefits at age 62, keep in mind that you still will not be eligible for Medicare until you are 65 years. So unless you are eligible for retirement health benefits through your former employer or your spouse's health plan at work you will probably want to pay for a private health policy until Medicare kicks in.
Other considerations
In addition to the factors discussed here, other personal considerations may influence whether or not you start collecting Social Security benefits at age sixty-second Is your spouse has already retired or plan to retire early too? Do you plan to travel, volunteer work, going back to school, start your own business, pursuing hobbies, or moving to a new location? Do you have grandchildren or elderly parents, whom you will help to take care of? Each person's situation is different.
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