Posted on 08/02/2018 9:22:46 AM PDT by Red Badger
Social Security benefits can be claimed at any point after a recipient turns age 62, and most Americans take their Social Security as soon as they can. Claiming benefits early can be smart, but it can pay off to wait. If you're deciding when to start receiving Social Security, here's what to consider. Estimate your expenses
Retirement usually means a big drop in income, and if you don't have a solid grasp on what your spending is going to look like in retirement, then you won't be able to make the best decision on when to claim.
Depending on who you talk to, experts usually recommend budgeting for 70% to 80% of your pre-retirement income to cover expenses in retirement. However, the exact amount you'll need depends on your specific situation.
According to the Bureau of Labor Statistics (BLS), retirees spend the most money on home mortgages and auto loans, so if those loans won't be paid off when you retire, you'll need to budget accordingly. Overall, the BLS reports that the average 65-plus household spends about $45,221 per year, and housing and transportation account for $15,711 and $6,830 per year, respectively.
Healthcare is another big expense in retirement, and it's usually smart to over-budget when it comes to planning for those expenses. If you're healthy, your costs might not increase significantly at first, but you'll likely require more healthcare as you get older, and that healthcare won't be cheap. Healthcare spending in over-65 households totals $5,877 per year, according to the BLS, including $4,029 for health insurance and another $694 for medicine. Fidelity Investments estimates that a couple retiring at 65 this year will fork out over $275,000 in healthcare expenses during their retirement, and ultimately, the tally could be tens of thousands of dollars higher than that if you need long-term care at some point, too. Social Security options
If you've paid into Social Security over a career lasting at least 10 years, there's a good chance you'll qualify for benefits.
You can claim your benefits when you turn 62, but you'll receive a reduced payment. If you go the claim-early route, apply three months before you turn 62, so that you can receive your first check in the month after you turn 62.
If you want to receive 100% of the benefit you're eligible for, you'll need to wait until you reach your full retirement age to claim. Your full retirement age depends on the year in which you were born, but for people turning 62 in 2018, it is 66 years and 4 months.
Your third option is to wait until after your full retirement age to claim so that you can receive delayed retirement credits. These credits increase your payment for every month beyond your full retirement age that you delay. Overall, delaying increases your benefit by 8% for every year you hold off, until age 70.
The following chart shows how much a Social Security recipient would receive if their full retirement age is 66, their benefit is $1,000, and they chose to claim benefits between age 62 and age 70.
Data source: Author's calculations.
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While this example shows how benefits change depending on when you claim, the exact amount you'll receive in benefits is determined by a complex calculation based on your highest 35 years of earnings.
You can create a login here to view your actual Social Security benefit, but the average monthly Social Security check is $1,404 in 2018, and the average check paid to recipients age 62, age 66, or age 70 last year was $1,112.30, $1,382.78, and $1,510.49, respectively.
Once you know your expected Social Security income at age 62, age 66, and age 70 add to it any other sources of retirement income you'll receive, such as pensions and investment income. If you've thoroughly calculated your projected retirement expenses, then you should be able to use these numbers to determine the age at which you can reasonably expect to afford to retire. Important considerations
If you have ample income in retirement from other sources, it might make the most sense to embrace a claim-early and-invest strategy. As you can see in the following chart, waiting to claim benefits doesn't break even with taking benefits early until you reach your late 70s or early 80s, depending on when you claim. But if you claim benefits early and then invest that income, you could conceivably push that breakeven point back even further, depending on your annual returns.
Data source: Author's calculations.
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It's also important to consider the impact of claiming decisions on your spouse's financial security after your death. If your widow and widower is full retirement age, they can receive 100% of your benefit amount after you pass away, but only up to what you would otherwise be receiving if you were still alive. Therefore, if you claim early and receive a smaller monthly benefit, it may not be enough money for your surviving spouse to maintain his or her lifestyle.
If you're working in a high-paying job (relative to what you earned early on in your career), you might want to delay claiming your benefit anyway. If you've already accumulated a 35-year work history, additional high-earning years will replace lower-earning years in your benefit calculation, thereby giving your full retirement age benefit a boost.
Furthermore, if you plan on working into your early 60s, then you should know that if your income exceeds limits, the IRS will tax some of your Social Security until you reach your full retirement age. In those cases, delaying when you claim so that you lower your income taxes might be a smart choice.
Overall, when to claim your Social Security benefits is one of the most complex, and important, choices you'll face leading up to retirement, so make sure you understand the various retirement strategies available to you.
I’m 62. I’m thinking either 66 or 67.
Ditto here... I’m coming up on 62.
ALL of my aunts and uncles, my mother included, smoked their entire adult lives. Almost all died of cancer in one form or another. So that is a factor as well.................
I am approaching 66, still working full time. Is there any downside to taking it while still working full time?
“But if you start collecting at 62 by the time you are 70 how much have you collected? Approximately 72000 dollars.
Now if you start collecting at (70 and only live another 5 years), how much did you collect? Approximately 78000 dollars...its pretty close.”
You also need to figure if collecting at 62 what you would have collected by age 75. (collecting at 70 & live 5 years = 75) So, you would collect $70K + $45K = $115. So, it’s not pretty close. $78K vs $115K
I’ll be filing three months before62. All the rest of the essay assumes you trust SS for anything....
Since I'm fully covered at the VA, I'd rather have the $120 they would have taken out of my meager SS check, to save or spend how I wanted.
We knew that retiring from the military would give us basic retirement benefits to live on when we quit working.
And VA medical benefits when we got older. Knowing that everyone struggles with the medical costs of their aging bodies and failing health, that seemed like a wise choice.
We've been married 43 years and still running beef cattle on a farm in Florida. So far so good at age 70.
And widows who haven’t remarried can start drawing SS at age 60, rather than having to wait until 62.
You have to file Form W-4V to have federal taxes withheld. The options are 7%, 10%, 15%, or 22%.
ttps://www.irs.gov/pub/irs-pdf/fw4v.pdf
The same think happened to a former coworker of mine. He was still working and had employer-sponsored health insurance. HR didn’t tell him that when he turned 65 he no longer could contribute to an HSA. I learned from his mistake, and maxed-out my HSA contributions before I turned 65. You can still draw down from an existing HRA after age 65, but you can’t put money into it.
Medicare Part A is automatic at age 65. You can delay Part B and Part D after age 65 without penalty if you are still working and you are covered under a qualified employer-sponsored plan.
You will permanently lose about 8% for each year between age 66 and age 70 that you draw SS. You have to evaluate your time preference rate and your annual mortality risk. If those two add up to more than 8%, take SS now. If they add up to less than 8%, then you should delay.
“When we read this stuff, we were absolutely amazed at just how convoluted this whole thing actually is.”
Absolutely correct. There are still some subtle features of both SS and Medicare that I don’t fully understand.
I hope you’re right, but I don’t think so. My understanding is that working or not, your SS benefits are Federally taxed as income if you receive over a certain amount.
Thank you.
Socialist Security is a crime against the “blessings of liberty”, and the enslavement of our posterity.
Well I am a Christian. I am not sure about that statement.
Everybody wants to go to Heaven, but nobody wants to die to get there!........Mark Twain.............
If you are black or hispanic you should take it early.
This chart is missing lifespan by race.
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