When to Claim Social Security
Benefits
There are MANY residents in our
community who have not started receiving their social security
benefits yet.
Just when is the
best time to start receiving them?
At age 62
?
At normal
retirement age (65-67 depending on your current age)
?
At age
70 ?
Did you know
each year you can wait, the benefit increases 8% ?
Did you know that depending on your
income THESE BENEFITS MAY BE TAXABLE....further
reducing the amount you receive?
If you are an AARP member, you
recently received your October, 2013 edition of the "AARP Bulletin".
...and if you're like me, you
probably "pitched" it !
But...this time, if you still have
it, there is an article that is a wonderful guide to give you some ideas as to
when benefits should commence...if you have not yet started to receive
them.
How does it affect you?
How does it affect your
spouse?
The article is entitled "When to Claim Social Security Benefits", and is on
pages 10 and 12.
...and if that has already been
collected by the garbage people, here is the link:
This one is a "keeper" and if you
are one of those who have NOT YET begun to receive these benefits, I strongly
advise you to contact your financial advisor to obtain an opinion that affects
both YOURS and YOUR SPOUSE'S
financial future.
Dick
Arendt
Received this from resident, Tim Stebbins:
ReplyDelete---------------------------------------------------------------
Good stuff on the Blog and good article in AARP Bulletin.
This is a confusing issue. There are arguments to take it early and arguments to wait until later. Basically it is a gamble we all take, betting we will beat the odds.
For what it is worth, several years ago I had a nice conversation with an official at Social Security Administration. It was explained to me that from the SSA point of view it really does not matter. Based on their actuarial calculations, just like any insurance product, they pay the same amount to all retirees.
The SSA figures they will pay the same amount of money in benefits to every retiree no matter when they choose to start their benefits. Those who start early, like 62 or 63, get a reduced monthly benefit for the rest of their lives - but they will receive that benefit for many more years than those who wait until an older age. Those who chose to wait until later, 69 or 70, get a larger benefit for the rest of their lives but they will receive that for far fewer years. In the end SSA pays the same to all retirees.
Hypothetically - a person will get $2,000/ month at age 70 but only $1,200/mo at age 62. If they start at 62 they will receive over $115,000 in benefits by the time they become 70. If they wait until 70 it will take a lot of years to make up for all that money they forfeited by waiting.
A retiree who takes the reduced benefit at 62 and lives to an age of 105 gets screwed, they should have waited and taken the large benefit at an older age.
A retiree who takes the larger benefit at 70 and dies at 71 or 72 gets screwed. They should have taken the early benefit.
The "sweet spot" is somewhere around the age of 86 or 87. If you figure you will live to be older than that it is better to wait to take the larger SS benefits at age 70. If you figure you will pass away before that age you are better off taking the reduced benefit at an earlier age.
One really stupid thing to do is to take SS benefits prior to your full retirement age while you are still working. The benefits will be reduced based on your income and you lose.
Tim
From Dick Arendt
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Good critique, Tim, but there is another element that should be considered---taxability of the social security benefits which of course, further reduces them.
Here's the formula for Social Security taxation:
The relevant income for Social Security taxation includes all items which are normally part of your adjusted gross income, plus tax-exempt interest income, plus 50% of your Social Security benefits. (Historically, the 50% represents the fact that half of your Social Security contributions were made by your employer and thus not taxed.)
There are two relevant base amounts; unlike most income limits in the tax code, they are not adjusted for inflation. The lower base is $25,000 if you are single, $32,000 if married filing jointly. The upper base is $34,000 if you are single, $44,000 if married filing jointly.
If your relevant income is below the lower base, none of your benefits are taxable. For every $1 of relevant income between the lower and upper bases, 50 cents of your Social Security benefits become taxable, up to 50% of your total benefits.
For every $1 of relevant income above the upper bases, 85 cents of your Social Security benefits become taxable, up to a total taxable amount of 85% of your benefits.
To reduce the taxability of the benefits, there is one aspect of financial planning NOT INCLUDED to compute the formula----income from ROTH IRA's. As a result, though the individual has to pay the income tax if one converts from Traditional to Roth, the end result is non-taxable and not included in the formula. Also ROTH IRA's do NOT require a distribution at age 70 as Traditional IRA's do.