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RETIREMENT & PASSING
RETIREMENT & PASSING MONEY SAVING TIPS
Is Taking Social Security At 62 Smart?
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Is Taking Social Security At 62 Smart?
Whether to start taking reduced Social Security payments as soon as you are eligible at age 62, or wait until a later age when benefits will be greater, depends primarily on two factors. The first factor is your anticipated life expectancy. The second factor is how much income other than Social Security benefits do you expect to have. However, some people concerned with the future of Social Security include a third factor in their decision. Will Social Security payments be available in the future at the anticipated level, or will benefits be cut back due to funding shortfalls? Consider the following when making your decision.
1. What impact should life expectancy have on my decision?
a. The Social Security Administration calculates that the age of 77 is about the break even age, when total benefits received from starting benefits at age 62 or age 66 is about the same. In other words, if you pass away prior to age 77, taking benefits at age 62 would have provided a larger payout. If you pass away after age 77, the benefit payout would have been greater.
b. While life expectancy is generally uncertain for an individual, the average 62-
c. Taking benefits at age 62, instead of waiting for full benefits at age 66, results in a 25% decrease in your annual Social Security payments, for the remainder of your life. The closer you get to age 66 before taking benefits, the smaller the decrease in benefits, as compared to full benefits.
d. According to the Social Security Administration, if a person takes benefits at
age 62 and lives until age 90, they would lose about $40,000 in lifetime benefits.
If they live to age 95 they would lose about $55,000 in lifetime benefits. If you
account for annual cost-
e. Another factor to consider is the fact that when a married beneficiary dies, the surviving spouse can choose to receive either their own benefit, or their deceased spouse’s benefit. If the deceased spouse commenced benefits at age 62, the monthly payment available by choosing to receive the deceased spouse’s payment upon their death would be less, than if the deceased spouse had commenced payments at age 66. In this case, the deceased spouse’s decision to take a reduced benefit at age 62 could financially impact the surviving spouse for years.
f. Of course, if you do not take Social Security benefits at age 62, you can elect to take benefits at any time, based on a benefits scale that gradually increases to full benefits at approximately age 66. The closer you get to 66 before taking benefits, the smaller the impact of taking benefits early. On the other hand, if you chose to delay taking benefits until after you are 66, you will receive about an 8% annual increase in benefits for each year you wait to commence benefits, until age 70. After 70, there is no advantage in waiting to take benefits.
g. If you are interested in learning more about your social Security benefits, refer
to your Social Security Statement received in the mail, or go to SocialSecurity.gov.
At the Social Security web site, if you type in the search box “retirement age calculator”
and then select the second entry “Break-
2. What impact should other sources of income have on my decision?
a. Clearly, if you only have minimal income from other sources when you turn 62, it may be necessary to commence Social Security payments as soon as possible.
b. But if you do have income from a job, retirement accounts separate from Social
Security, or from other sources, and you elect to take Social Security benefits before
full retirement age, your Social Security payments may also be taxed until you reach
full retirement age, resulting in a reduced after-
c. The threshold for income is about $14,000 for an individual, and about $32,000 for a married couple. Combined income above that threshold is then subject to income tax. Combined income includes half of a retiree’s Social Security benefits, wages from a job, pensions, and withdrawals from most retirement plans. So, if you have other sources of income, those payments you elected to receive from Social Security before reaching full retirement age may be taxed away to a significant extent.
3. What about the future of Social Security? Will the money be there to fund my monthly benefits as long as I live? This question does not have a definitive answer, but most experts believe that Social Security will be fully funded at present benefit levels, for people that are currently at or near retirement age. Whether Social Security changes for younger age groups is more in doubt.
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