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Just because you are no longer in the work force doesn't mean you should immediately claim Social Security. Yet many retirees do just that–and possibly end up short-changing themselves. You are eligible to receive your full benefit when you attain your full retirement age (generally age 66 or 67, depending on when you were born). If you decide to start taking Social Security before you reach your full retirement age, your monthly benefit is reduced. Likewise, if you start your Social Security benefit after your full retirement age, your monthly benefit is increased to take into account the delay in payments. This means the longer you delay claiming Social Security, the larger your monthly benefit will be. Keep in mind there are no benefit increases after you reach age 70. A smart decision? Maybe, let's take a look at some scenarios to see how delaying can benefit some people.
Figuring out when to claim Social Security is fairly straightforward if you are single. You can claim benefits as early as age 62 or as late as age 70.
If you begin taking your benefit at age 62, it will be approximately 75 percent of what your full benefit would have been at your full retirement age (generally, 66 or 67, depending on when you were born). If, however, you wait to begin collecting your benefit until after you reach your full retirement age, your benefit is increased. The amount of increase depends on the number of months you delay, and it could be as much as 8 percent per year. It is important to note that there are no benefit increases after you reach age 70. If you work and begin receiving benefits early, your Social Security benefit will be reduced if you exceed the annual limit on earnings. Your benefits may be taxed if you receive Social Security income and have earned income. You may want to consult a tax advisor before you apply for Social Security or start earning income.
Other factors to consider include your health and personal savings. Keep in mind that if you delay Social Security until your full retirement age or later but die early, you will have received benefits for a shorter period of time than if you had started them before your full retirement age. But, if you live into your 80s, it could be a smart decision because you will collect a larger monthly check for a number of years that will compensate for those initial years when you didn't receive benefits. Looking at your own personal health and family longevity are factors to consider before making this decision. For additional information on this and other aspects of Social Security, go to Social Security Administration
What if you are married? Suddenly, the choice gets more complicated. As you and your spouse weigh when to claim benefits, you may want to consider four additional rules.
What are the implications of all this? If you and your spouse are both in poor health or family history suggests longevity isn't on your side, you may both want to claim Social Security earlier. You might also want to claim benefits early if you have children under the age of 19 because you may also be able to claim family benefits. The rules are different if you have one or more disabled children, so you should review them when deciding when to begin your benefit. To learn more about family benefits, go to Social Security Administration
If you don't have children under the age of 19 (or a disabled child) and there is a reasonable chance that you or your spouse could live into your 80s, the decision gets trickier. One possible strategy: the spouse with lower lifetime earnings might claim benefits at 62 based on his or her own earnings record, while the higher-earning spouse postpones benefits.
Why postpone benefits if you were the higher-earning spouse? If you delay, you will boost both your benefit and also the survivor benefit that is potentially payable to your spouse should you die before him or her.
Problem is, if you don't claim benefits, your spouse may be able to get benefits based on his or her own earnings record-but they won't get spousal benefits, which could be even more valuable. Keep in mind that, because of the survivor benefit, it may make sense for you to delay benefits, even if your health isn't good. In effect, if you are married and you were the family's main breadwinner, your Social Security benefit could live on after your death–and you may want to postpone benefits for the sake of your spouse.
Deciding when to begin your Social Security benefits is complicated and you need to take into consideration a number of factors, including but not limited to: your financial situation, your health and that of your spouse, and what you plan to do during your retirement years. You can find more information about Social Security benefits by visiting the Social Security website at Social Security Administration. Speak with your Financial Advisor to compare your options and how it will affect your overall retirement plan.
To get a quick initial projection on your Social Security income, try out our Social Security planning tool
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