Social Security Retirement Benefits

Achieving the dream of a secure, comfortable retirement is much easier when you plan your finances.

Social Security is part of the retirement plan for almost every American worker. It is considered to be one of the three “legs” of retirement finances (retirement plans and savings being the other two), and for some it may be the only source of retirement income. It provides replacement income for qualified retirees and their families.

Planning is the key to creating your best retirement. You’ll need to plan, save and invest for decades to achieve your retirement goals. While many factors affect retirement planning, it is important that you to understand what Social Security can mean to you and your family’s financial future.

As you make your financial and retirement plan, knowing the approximate amount you will receive in Social Security benefits can help you determine how much other retirement income you’ll need to reach your goals.

Social Security replaces a percentage of a worker’s pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.

How Social Security system works

The theory behind the concept of Social Security was that taxes assessed on the wages, up to a statutory limit, of those who are gainfully employed will be used to pay the benefits to those who have left the work force due to old age. This, when you work, you pay taxes into Social Security. Social Security Admission (SSA) use the tax money to pay benefits to:

  • People who have already retired.
  • People who are disabled.
  • Survivors of workers who have died.
  • Dependents of beneficiaries.

The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. SSA uses your taxes to pay people who are getting benefits right now. Any unused money goes to a Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.

You can work while you receive Social Security retirement or survivors benefits. When you do, it could mean a higher benefit for you and your family. But, if you’re younger than full retirement age, and earn more than certain amounts, your benefits will be reduced. The amount that your benefits are reduced, however, isn’t truly lost.

Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings. (Spouses and survivors, who receive benefits because they have minor or disabled children in their care, don’t receive increased benefits at full retirement age if benefits were withheld because of work.)

Each year, Social Security Admission (SSA) reviews the records of all Social Security beneficiaries who have wages reported for the previous year. If your latest year of earnings is one of your highest years, they recalculate your benefit and pay you any increase you are due. The increase is retroactive to January of the year after you earned the money.

When you begin receiving Social Security retirement benefits, you are considered retired for SSA purposes. You can get Social Security retirement or survivors benefits and work at the same time. However, there is a limit to how much you can earn and still receive full benefits.

If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount.

If you are under full retirement age for the entire year, SSA deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.

In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2020, this limit on your earnings is $48,600. They only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.

When you reach full retirement age:

  • Beginning with the month you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn.
  • SSA will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.

To Receive Benefits

The age you begin collecting your retirement benefit affects how much you will receive. There are three important things to know about age when thinking about when to start your benefits.

  • Full Retirement Age – Full retirement age is the age when you will be able to collect your full retirement benefit amount. The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. You can find your full retirement age by birth year in the full retirement age chart.
  • Early Retirement Age – You can get Social Security retirement benefits as early as age 62. However, your benefit is reduced if you start receiving benefits before your full retirement age. Understand how claiming retirement benefits early will affect your benefit amount.
  • Delayed Retirement Age – When you delay collecting benefits beyond your full retirement age, the amount of your retirement benefit will continue to increase up until age 70. There is no incentive to delay claiming after age 70.

In 2020, if you’re under full retirement age, the annual earnings limit is $18,240. If you will reach full retirement age in 2020, the limit on your earnings for the months before full retirement age is $48,600.

Starting with the month you reach full retirement age, there is no limit on how much you can earn and still receive your benefits.

Let’s look at a few examples. You are receiving Social Security retirement benefits every month in 2020 and you:

  • Are under full retirement age all year. You are entitled to $800 a month in benefits. ($9,600 for the year)
    You work and earn $28,240 ($10,000 over the $18,240 limit) during the year. Your Social Security benefits would be reduced by $5,000 ($1 for every $2 you earned over the limit). You would receive $4,600 of your $9,600 in benefits for the year. ($9,600 – $5,000 = $4,600)
  • Reach full retirement age in August 2020. You are entitled to $800 per month in benefits. ($9,600 for the year)
    You work and earn $63,000 during the year, with $50,718 of it in the 7 months from January through July. ($2,118 over the $48,600 limit)
  • Your Social Security benefits would be reduced through July by $706 ($1 for every $3 you earned over the limit). You would still receive $4,894 out of your $5,600 benefits for the first 7 months. ($5,600 – $706 = $4,894)
  • Beginning in August 2020, when you reach full retirement age, you would receive your full benefit ($800 per month), no matter how much you earn.

When SSA figures out how much to deduct from your benefits, they count only the wages you make from your job or your net profit if you’re self-employed. They include bonuses, commissions, and vacation pay. They don’t count pensions, annuities, investment income, interest, veterans, or other government or military retirement benefits.


References:

  1. https://www.ssa.gov/benefits/retirement/planner/whileworking.html
  2. https://www.ssa.gov/benefits/retirement/learn.html
  3. https://www.aaii.com/journal/article/13102-a-primer-on-social-security?via=emailsignup-readmore
  4. https://www.ssa.gov/benefits/retirement/learn.html#h2

Social Security at 62

31% of women and 27% of men tapped into Social Security at age 62.

FIDELITY VIEWPOINTS – 07/28/2020 7 MIN READ

You can start collecting your Social Security retirement benefits at any age from 62 to 70, and when you do so affects how big the checks will be. Start earlier, and you’ll receive smaller checks; delay, and you’ll receive bigger ones.

Key takeaways

  • If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits.
  • For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit. So, if you can afford it, waiting could be the better option.
  • Health status, longevity, and retirement lifestyle are 3 variables that can play a role in your decision when to claim your Social Security benefits.
  • After you reach full retirement age, you have the option of temporarily suspending your benefits. During a suspension you can rack up delayed retirement credits, which will increase your eventual payments.

When it comes to Social Security, it is tempting to take benefits as soon as you’re eligible at age 62. In 2018, 31% of women and 27% of men tapped into Social Security at age 62. After all, these men and women have been paying into the system for all of their working life, and they’re ready to receive their benefits (guaranteed monthly income).

Health status, longevity, and retirement lifestyle

Health status, longevity, and retirement lifestyle are 3 key factors that can play a role in your decision when to claim your Social Security benefits. No one can predict the true impact of these variables, but you can rely on the simple fact that if you claim early versus later, you will likely have lower benefits from Social Security to help fund your retirement over the next 20-30+ years.

The earliest age you can sign up for Social Security is 62, and if you go that route, you’ll permanently shrink your monthly benefit by 25% to 30%, depending on your full retirement age. But in spite of that, it still may pays to sign up for benefits at 62.

One of the best reasons to take Social Security at 62 is if you’ve got a serious illness or chronic medical conditions. As with all retirement planning, you’re acting like an amateur actuary, predicting your own life expectancy to determine how long you’ll need your money to last.

Research shows that the more chronic conditions you have, the shorter your lifespan is likely to be. A 2014 study by researchers at Johns Hopkins University showed that a 67-year-old individual with no chronic conditions will live on average 22.6 years (almost to 90) but that a person of that age with five chronic conditions will live on average 7.7 fewer years than the healthy 67-year-old.

Those chronic conditions included heart disease, cancer, chronic obstructive pulmonary disease, stroke and Alzheimer’s disease. Other common chronic illnesses, according to the Chronic Conditions Data Warehouse, which uses data from Medicare and Medicaid, include hypertension, arthritis, diabetes and kidney disease.

You’ve saved enough that filing early doesn’t matter

If you have more than enough money in your IRA or 401(k) to live comfortably throughout retirement, filing at 62 may not hurt you financially. And, you should consider taking your money and use it to enjoy the early part of your later years. Your benefits could make it possible to travel or do the many things you’ve always dreamed of doing. If claiming Social Security early won’t hurt you in the long run, why not go for it.

Investing your benefits

With investing, there are no guarantees, but if you’re a seasoned investor and are confident in your ability to make a lot of money by putting your Social Security benefits to work, then claiming them at 62 could be a good idea.

Working during retirement

Working during retirement could raise your provisional income, and the higher that income, the more likely you are to have your Social Security benefits taxed. Provisional income is what’s used to determine whether your Social Security benefits will be subject to federal taxes. It’s calculated by taking all of your non-Social Security income and then adding in 50% of your annual benefits. If that total falls between $25,000 and $34,000 and you’re a single tax filer, you could be taxed at the federal level on up to 50% of your Social Security benefits. If it exceeds $34,000, up to 85% of your benefits could be taxed.

The average amount spent in retirement by Americans 65-74 is $55,000 a year. The average Social Security check is $14,000 a year. Only 23 percent of boomers ages 56-61 expect to receive income from a private company pension plan, and only 38 percent of older boomers expect a pension. As for personal savings, most boomers have not saved nearly enough and 45% of boomers have zero savings for retirement.

Change your mind

If you develop filer’s remorse, Social Security gives you 12 months from the date you applied for retirement benefits to change your mind and cancel that initial claim. You’ll have to repay what Social Security has already paid you (and what it has paid your spouse and kids, if they’re collecting family benefits on your record), but this way you can refile later at full retirement age and get your full benefit.

There is one circumstance in which Social Security raises your payment at full retirement age, although probably not to 100 percent of your full benefit. That’s if they withheld some of your benefits during early retirement because you had work income that exceeded Social Security’s earnings limit. In this case, they recalculate your benefit at full retirement age to help you recoup those losses

You Have Minor Children

If you have children, eligible grandchildren, or even a spouse providing care for these children at home, these family members may be eligible for a benefit. Just know you will have to file first before they can receive it!

There’s a rule that states that before benefits can be paid to anyone off of your work record, you have to be receiving benefits. That means filing early could make more sense than waiting.

When combined with your benefits, the benefits to children and your eligible spouse can be up to 180% of your full retirement age benefit. If you have children at home that meet the criteria for eligibility, that’s an obvious reason to consider filing early.

Let’s look at an example to illustrate this.

Say you’re 62 and your wife is 50. You have two children, ages 13 and 11. Thanks to good savings habits throughout your working career, you don’t need Social Security income and can be flexible when you file.

Take into account the benefits paid to your children.

While your children would be eligible for benefits based upon your retirement, the kids cannot get benefits until you file. That means your family would able to collect thousands of dollars more in lifetime benefits if you file early and turn on the benefits for your kids.

File and suspend

Lawmakers made changes to benefits available to Social Security participants who waited until full retirement age to claim benefits. Among them were the repeal of the restricted application or file-as-a-spouse-first strategy and the file-and-suspend strategy. Under a restricted application, those who reached full retirement age could elect to claim only spousal benefits, leaving their own retirement benefits untouched. Similarly, using file and suspend, someone at full retirement age or older could file for benefits but immediately suspend them and still allow a spouse to claim spousal benefits.

As a result of these legal changes, there’s no longer as much incentive for married couples to wait until full retirement age — currently age 66 — to claim their benefits. The thousands of dollars that these couples will no longer be eligible to receive could be enough to push the balance toward claiming earlier rather than waiting.

When to claim Social Security is a tough decision that involves plenty of variables. But even though many financial planners urge their clients to think twice before claiming benefits at the earliest possible age, there are situations where it makes more sense to go ahead and take Social Security at 62 rather than waiting.


References:

  1. https://www.fidelity.com/viewpoints/retirement/social-security-at-62#:~:text=If%20you%20start%20taking%20Social%20Security%20at%20age,FRA.%20Remember%2C%20FRA%20is%20no%20longer%20age%2065.
  2. https://www.fool.com/retirement/2020/10/08/why-working-during-retirement-could-hurt-you-from/
  3. https://www.fool.com/retirement/2020/09/07/3-great-reasons-to-take-social-security-benefits-a/

Social Security Age: Claim at 62 or Wait until 70

“The age you claim Social Security affects your lifetime income.”

Social Security Administration (SSA) payments are based on a calculation of a 35-year average of your lifetime earnings. Each year’s wages are adjusted for inflation before being averaged. If you worked longer than 35 years, the highest 35 years will be used. If you worked fewer than 35 years, SSA will average in zeros for the missing years.

When to collect benefits

According to the Center for Retirement Research at Boston College, 48% of women and 42% of men who claimed Social Security retirement benefits in 2013 did so as soon as they were eligible at age 62.

Yet, according to many financial advisers, baby boomers would be better off waiting until their seventieth (70th) birthday to start claiming Social Security, than if they take benefits in their 60s.

The logic behind this advice is driven by the 8% government-guaranteed increase in lifetime payments for each year baby boomers delay benefits past age 62, up to age 70.

But, baby boomers need to ask themselves what is the likelihood they will live long enough to benefit from the increased payments that start later in life at seventy years old versus collecting benefits at sixty-two years old.

When you decide to delay starting Social Security benefits, you’re betting that you will out-live an actuarially based mortality estimate.

Discount Rate Specification and the Social Security Claiming Decision from the Social Security Administration (SSA) study evaluates Social Security benefits not only as a function of the age of death, but also the probability of reaching that age. It provides that analysis over a range of discount rates.

A general conclusion of the study is that you shouldn’t wait to reach the age of 70 to initiate your Social Security benefits.

Social Security Benefit Breakeven

Before you start drawing on Social Security at age 62, it is recommended that you determine if it maximizes your total payments by calculating the breakeven. Additionally, it’s important that you balance the timing of those benefits with the rest of your retirement income plans. This choice of starting benefits isn’t reversible after 12 months.

Social Security breakeven age occurs when the total value of higher benefits (from postponing retirement) starts to exceed the total value of lower benefits (from choosing early retirement).

  • Example: If you are eligible to collect a reduced $900 benefit at age 62 plus 1 month, and your benefit would increase to $1,251 at age 65 and 10 months, your estimated break-even age is 75 years and 5 months.

https://youtu.be/9e3M3kM9LFk

Early Benefits

Collecting early benefits may pay off despite the reduced monthly check. Since it is impossible to predict how long a baby boomer will live. If you’re facing a potentially significant reduction in life expectancy and are short of income, taking Social Security early may be appropriate.

Just be aware that you will receive a reduced benefit. If your full retirement age is 67 and you begin collecting Social Security at age 62, for example, your benefits are reduced by about 30 percent.

The rational advisors often hear from baby boomers who want to apply for Social Security early benefits at age 62 is that you’ve paid into the system for decades, and want to get something out of it before it goes bankrupt. It might feel like the best decision at the time, but down the road, it may prove the worst decision you ever made in your life.

The legitimate fear for planning purposes is not that you might die early and miss out on some money you could have had from social security, but rather that you will outlive your money.   Think about waiting to collect Social Security as a form of longevity insurance—for you for sure, but also for your surviving spouse if you are the higher earner.  In fact, a higher Social Security benefit is the best deal on longevity insurance you can get.

Benefits reduced if you’re work while receiving benefits

Working after you start receiving retirement benefits may affect your monthly benefit amount, depending on your age and how much you earn. If you are younger than your full retirement age, and your earnings exceed certain dollar amounts, some of your monthly benefit may be withheld.

Social Security will increase your monthly benefit after you reach full retirement age to account for the months of withheld benefits. When you reach your full retirement age, you can work and earn as much as you want and your benefit will not be affected.

Full Retirement Age

Optimum strategy for most baby boomers may or may not be to postpone Social Security benefits at least until you reach full retirement age, which is determined by the Social Security Administration.

Your full retirement age (FRA) is determined by the year you were born. The retirement age used to be 65 for everyone, but is gradually increasing to 67. As the full retirement age goes up, benefits claimed at earlier ages go down.

FRA is 67 for those born in 1960 or later. If you were born in 1937 or earlier, your full retirement age is 65. The FRA rises two months every year after that until it caps out at age 67.

However, collecting Social Security early will cost you. If your full retirement age is 67, your Social Security benefit is reduced by:

  • About 30 percent if you start collecting at 62.
  • About 25 percent if you start collecting at 63.
  • About 20 percent if you start collecting at 64.
  • About 13.3 percent if you start collecting at 65.
  • About 6.7 percent if you start collecting at 66.

If you expect to live beyond the breakeven age, it would be financially worth your while to delay drawing benefits. Yet, there’s not an age that’s appropriate for everyone. Baby boomers must consider their own financial need, health and post-retirement plans before deciding when to begin social security benefits.

There are many ways to collect Social Security benefits. You can collect benefits starting at age 62 or anytime up until you’re 70. Collecting early benefits at age 62 means smaller monthly payouts than waiting until full retirement age or waiting until seventy (70). It’s generally advisable to wait until full retirement age to start collecting Social Security benefits because the monthly benefit is higher than starting early benefits at age 62.


References:

  1. https://crr.bc.edu
  2. https://www.thestreet.com/retirement/social-security-claim-now-or-wait
  3. https://www.bankrate.com/retirement/when-to-take-social-security/
  4. https://www.forbes.com/sites/jlange/2018/10/01/what-is-the-best-age-to-apply-for-social-security/#97e7e9a56d2b
  5. https://www.ssa.gov/benefits/retirement/

10 Rules for Financial Success – Barron’s

“Wealth isn’t about how much money you make – wealth is about how much money you save and invest.”

The true measure of financial success isn’t how much money you make—it’s how much you keep. That’s a function of how well you’re able to save money, protect it, and invest it over the long term.

Sadly, most Americans are lousy at this.

Even after a decade of steady economic expansion and record-breaking stock markets, almost two-thirds of earners would be hard-pressed to cover an unexpected $1,000 expense—a medical bill, car repair, or busted furnace—and more than 75% don’t save enough or invest skillfully enough to meet modest long-term retirement goals, according to Bankrate.com.

Even wealthy families aren’t getting it right: 70% lose wealth by their second generation, and 90% by their third. “Shirtsleeves to shirtsleeves in three generations,” as a saying often attributed to Andrew Carnegie goes.

What’s at the root of these bleak data? Stagnant salaries amid rising costs of health care, education, housing, and other big-ticket necessities have put a major strain on folks of all ages. But advisors point to a deeper issue: an almost universal lack of financial literacy.

“This is a much bigger problem than most people are aware of,” says Spuds Powell, managing director at Kayne Anderson Rudnick Wealth Management in Los Angeles. “I’m constantly amazed at how common it is for clients, even sophisticated ones, to be lacking in financial literacy.”

The ten rules for financial success are:

  1. Set goals
  2. Know what you’ve got and know what you need
  3. Save systematically
  4. Invest in your retirement plan
  5. Invest for growth
  6. Avoid bad debt
  7. Don’t overpay for anything
  8. Protect yourself
  9. Keep it simple
  10. Seek unbiased advice

— Read on www.barrons.com/articles/10-rules-for-financial-success-51558742435

Social Security: Claim too early and lose $100,000 in retirement | USAToday

In 2019, about 64 million Americans will receive over one trillion dollars in Social Security benefits, according to the Social Security Administration’s Social Security Fact Sheet. Those Americans will lose an average of $111,000 per household over a lifetime by taking Social Security benefits too early into their retirement, rather than using their own savings.


Only 4% of retirees took Social Security at the financially optimal age, which, for 83.4% of Americans, was age 67 or older. The best age depends on a host of factors, including life expectancy, other income sources, future costs in retirement and if you’re married or still working.
Fortunately, there are general rules of thumb that will get you close to your best claim age:

  • Nearly no one is better off claiming before 65.
  • Nearly everyone is better off claiming between 67 and 70.
  • If you’re married, the person who earned the most should wait until 69 or 70. The person who made less can claim at 66 or 67.

— Read on www.usatoday.com/story/money/2019/06/28/social-security-claim-too-early-and-lose-100-000-retirement/1572620001/

How much to save per month for retirement


Retiring can be an intimidating prospect, given the many financial unknowns involved. And there’s just something unsettling about giving up a steady paycheck and living on savings and Social Security instead.

The latter has older workers especially worried. In fact, 59% are concerned that Social Security won’t have adequate funds to pay their benefits, according to a recent Nationwide survey.

If you share this concern, you should know that it’s valid. But you should also know that there’s one important step you can take to alleviate it.
— Read on www.usatoday.com/story/money/2019/09/21/59-of-future-retirees-are-worried-about-social-security-data-shows/40153191/