Posted on 07/25/2012 2:59:16 PM PDT by SeekAndFind
Dear Carrie:
I'll be 62 next month. All my friends seem to be taking Social Security on their birthday. I've heard this may not be the wisest choice. What do you think? --A Reader
Dear Reader:
Turning 62 seems to be one of those magic milestones -- and more and more people seem to be celebrating by filing for Social Security benefits the first chance they get. According to the Stanford Center on Longevity, the majority of retirees choose to begin receiving Social Security payouts within a few months after age 62 or immediately after they stop working, regardless of economic or educational status.
The reasons for taking benefits early appears to be primarily emotional -- fear that Social Security will disappear or just because it's possible to do it -- rather than considering if it makes long-term financial sense. In fact, a new study by economists John B. Shoven and Sita Nataraj Slavov indicates that rather than putting extra money in your pocket, taking Social Security benefits early may likely leave a fair amount of money on the table.
But studies aside, deciding the best time to take your benefits is a personal decision, based on your individual situation. So before you join your friends at the benefits table, I'd check your own financial reality.
DO YOU NEED THE MONEY?
The ongoing recession has made this a serious question for a lot of people. For those who have lost their jobs and are having trouble finding other employment, taking Social Security benefits early may be essential to stay afloat.
On the other hand, if you're still working and you file at 62, not only will your benefits be permanently reduced by about 25 percent, $1 will be deducted for every $2 you make above the annual limit, which is currently $14,640. While you will get the money back in the form of a recalculated benefit when you turn 66, the temporary reduction minimizes the economic value of filing early. Plus, if you make over a certain amount each year (between $25,000 and $34,000 for single filers; between $32,000 and $44,000 for married filing jointly), you will likely have to pay income taxes on a percentage of your benefits.
DO THE MATH
There's also another way to look at the numbers. The study I mentioned earlier makes a strong economic case for delaying benefits, especially in a low-interest environment like the one we're in now. First, if you delay taking your Social Security benefits from age 62 to your full retirement age (66 for those born between 1943 and 1954), you'll increase your payout by 25 percent. And if you continue to delay taking your benefits until age 70, your payout increases by 8 percent each year. That's equivalent to an 8 percent raise! The study suggests that when interest rates are 3.5 percent or below, the gains from delaying are especially significant. In a close to zero-interest world like ours, the numbers speak for themselves.
LOOK AT THE PERSONAL SIDE
Of course numbers are only one side of the story. You also need to consider your health and your family history of longevity. The average life expectancy for American women turning 62 this year is 85 1/2, for men it is 83. If you have a serious illness or there are other factors affecting your life expectancy, you might be wise to take your benefits early. However, if you are healthy and come from a family of centenarians, you should definitely consider waiting until 70 to collect to give yourself a financial boost in your later years.
COORDINATE WITH YOUR SPOUSE
If you are married, it also makes sense to coordinate the timing of your Social Security benefits with your spouse. Even if one spouse has never worked, he or she is often still eligible to collect a benefit based on their spouse's work record. If either spouse begins to collect early, their benefit will be reduced. However, for two-earner couples, and especially if there is a large discrepancy in incomes, it may make sense for the lower earner to take a spousal benefit at age 66, while the higher earner waits until age 70. The lower earner can either continue receiving spousal benefits or switch to their own benefit when they turn 70. As you can see, this type of calculation can get extremely complex. I strongly advise couples to get some help from a qualified financial advisor or Social Security expert before filing.
MAKE SOCIAL SECURITY PART OF A BIGGER PLAN
While it is often wise to delay taking Social Security benefits, your decision should always be part of a larger retirement plan. I would start by estimating what your yearly expenses will be in retirement. Calculate how much you can realistically draw from your portfolio and how significant Social Security will be to your overall financial picture. And then coordinate with your spouse. Just because the government allows you to draw your benefits at 62 -- or even at 66 -- doesn't mean you should. Your retirement plan is unique. What someone else considers a wise decision may not be the best move for you.
-- Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice.
Only if born 1937 or earlier.
66 for born 1943-1954
That does seem odd. Maybe it involves something like starting benefits, placing them on hold, then restarting. SS regulations are beyond complex.
Otherwise, once you start the payment is set. There may be occasional COLA increases or other family situations that affect the amount.
Up until the end of 2010, they had the “restart” provision where you could pay back everything you had received and start over at any age up to 70.
That was my plan but Baraq killed it off.
http://bucks.blogs.nytimes.com/2010/12/09/social-security-seeks-to-end-free-loans/
You can start receiving at 62 and then when you're 65 or 66 (the age at which you could have received the higher benefit) decide to pay back what SS has paid you and start receiving at the higher amount.
lol...not...but i am sure they will want us both to file and pay!
“You can start receiving at 62 and then when you’re 65 or 66 (the age at which you could have received the higher benefit) decide to pay back what SS has paid you and start receiving at the higher amount.”
Sounds like a plan destined to go awry to me.
Simple. We don't think Social Security will be around much longer and want to get from it as much as we can.
If your spouse is older than you and draws or will draw a bigger SS check than you and will probably die before you, it makes sense to get your Social Security as soon as you can. When one spouse dies and both are on SS, the surviving spouse gets the larger of the two checks.
My father was disabled due to triple bypass in his fifties. He drew a larger check than a regular SS check. (BTW, why does SS disability pay more?) My mother, 8 years younger and healthier than my father, started drawing her Social security at 62. It was a wise decision. When Dad died, Mom got his larger check, so her reduced benefits check no longer mattered.
Incorrect.
See my post above.
Obama terminated that end of 2010.
Bump, my situation exactly. Unempolyed at 60, used 401k to stay a float and until 62, and yes I would rather be working. But who is going to hire a 65 year old programmer?
There is, as some have pointed out, a motivation to draw it before one loses it through change of policy, but most of the attendees didn't really seem too strong on that. What we all were volubly concerned about was changes in healthcare costs as a result of 0bamacare, and naturally the people putting on the seminar didn't have any better idea than we did. Signing up for Medicare is still MANDATORY at 65. You don't have to take it but you do have to register. Kind of reminds me of the draft, lo those many years ago...
Thanks for the info.
How does inflation fit into those calculations? I'm told that social security is inflation-adjusted, but the government's inflation figures are usually artificially low.
So wouldn't inflation make it even longer to catch up?
We would.
We just did.
Thanks for posting. Good timing. I was at the social security office today. The clerk printed out a spreadsheet with some numbers to digest. I planned to file today, but I’m going to spend a few days looking over the numbers. I want some of the money back the socialists confiscated from me. I turned 62 in May and am still working full time.
Get me out of this effen socialist system forced on me.
(I’ll look forward to reading the comments tomorrow as I am off to bed. I have to get up in 7 hours to get ready for work)
/FR
and.....people are tired of working hard......hard work does not pay off anymore....
Get it before it’s gone. The feces is about to hit the oscillating blades.
Same with the increase in “disability” filings.
Frankly, I’m all for crashing the statist’ ponzi systems.
Look at all of their failures...CA, NY, IL, etc. Let them crash. Overload the system to the point of collapse.
You are correct, once taken early, there are no do overs later. What you got is what you will get (except for across the board living expenses for all SS recipients) hence forth.
Take it at age 62+ and draw reduced benefits for three years. Wait until age 65+ and it will take years to equal out for monies in pocket since age 62.
You would not happen to be in the Houston Tx area would you?
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