Whether someone wants to leave work at 62, 67, or 70, claiming the retirement benefits they are entitled to by federal law is no casual decision. Consider a few key factors first.
Whether someone wants to leave work at 62, 67, or 70, claiming the retirement benefits they are entitled to by federal law is no casual decision. Consider a few key factors first. How long is an average lifespan? If someone thinks they will live into their nineties, for example, it may be better to claim later. If Social Security benefits are received at or after age 67 (Full Retirement Age), the monthly benefit will be larger than if it had been claimed at 62. If benefits are filed at 67 or later, chances are someone has probably a) worked into their mid-sixties, b) are in fairly good health, c) have sizable retirement savings.
If incapable of reaching age eighty or in dire need of retirement income, claiming at or close to 62 might make more sense. If someone has an average lifespan, they will, theoretically, receive the average amount of lifetime benefits regardless of when they are claimed; the choice comes down to more lifetime payments that are smaller or fewer lifetime payments that are larger. For the record, Social Security’s actuaries project the average 65-year-old man living 84.3 years and the average 65-year-old woman living 86.6 years.
What influences your employment status? It might not be beneficial to work too much, for earning too much income can result in Social Security being withheld or taxed. Prior to age 66, benefits may be lessened if income tops certain limits. In 2017, if between 62-65 and receiving Social Security, $1 of benefits will be withheld for every $2 that earned above $16,920. If Social Security is received and one turns 66 this year, then $1 of benefits will be withheld for every $3 earned above $44,880.
Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + non-taxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000-34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000-44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income tax on up to 85% of their Social Security benefits. At what point should one's spouse file? Timing does matter. For some couples, having the lower-earning spouse collect first may result in greater lifetime benefits for the household.
Finally, how much in benefits might be available for one's self? Visit ssa.gov to find out, and keep in mind that Social Security calculates monthly benefits using a formula based on the 35 highest-earning years of one's career. If someone has worked for less than 35 years, Social Security fills in the “blank years” with zeros. For example, just 33 years of work experience, working another couple of years might translate to slightly higher Social Security income. The claiming decision may be one of the major financial decisions in life. The choices should be evaluated years in advance, with insight from the financial professional who has helped plan for retirement. Dennis Coral may be reached at (305) 761-8886 or [email protected]