How does the Social Security system work, and how do you decide what's right for you? Well, receiving benefits is an option available to you as early as age 62, but choosing to receive benefits this early may decrease your benefits by up to 30%. Nonetheless, opting for early retirement could lead to increased benefits if you choose to invest them rather than spend them.
If you choose to receive benefits before your full retirement age, each month before that age results in a small reduction in your benefits. The Social Security website, ssa.gov, provides a chart to calculate how much your benefit will be reduced based on your year of birth.
For those born in 1954, your retirement age is considered to be 66, which means that starting to receive benefits at age 62 will result in a 25% reduction; for example, a $1,000 retirement benefit would be reduced to $750. The maximum benefit for a spouse is 50% of the worker's benefit at full retirement age minus 30%. So, the spouse’s benefit would be reduced by 30%.
Once you reach full retirement age, you're eligible for full benefits. Delaying your benefits until age 70 will increase your benefit amount. If you wait until after your full retirement age to start receiving benefits, you’ll qualify for delayed retirement credits, which will then raise your monthly benefit. By retiring at age 70, you can receive the largest benefit, but you're gambling that you'll live longer.
Social Security retirement benefits can be increased by a certain percentage for each month beyond your full retirement age you delay receiving your benefits. Benefit increases stop once you reach age 70. For instance, if you were born in 1954 (retirement age 66) and delay receiving your benefits, your monthly rate of increase would be two-thirds of 1% and your 12-month rate of increase would be 8%.
You can opt to start receiving benefits before the month you apply if you've already reached full retirement age, but you won't receive retroactive benefits for any month before that or more than six months in the past. The Social Security website has an online calculator that factors in all credits to provide an estimate for comparison purposes.
Even if you defer your benefits until after age 65, you still need to apply for Medicare benefits within three months of turning 65. Failing to do so could result in higher costs for Medicare medical insurance (Part B) and prescription drug coverage (Part D).
Questions worth considering if you wait to receive your Social Security benefits
Do you still work? If you're currently employed, bear in mind that there are earning limits each year between age 62 and full retirement age beyond which you may not receive all your benefits. However, once you reach full retirement age, your earnings will not impact your benefits.
Do you have a guess as to your life expectancy? When planning for retirement, it's crucial to consider your life expectancy in the long term. Men who reached age 65 on April 1, 2022, for instance, have a life expectancy of 84.1 years, an increase of more than six years since Social Security began issuing monthly benefits in 1940.
Women who reached age 65 on April 1, 2022, have a life expectancy of 86.7 years, seven years more than in 1940. Your family history and lifestyle are also important considerations, since you may need additional income in your later years if you outlive your pension or annuities.
Will your health insurance stay intact if you stop working? It's important to bear in mind that you may lose your employer-provided health insurance if you stop working, and you won't be eligible for Medicare until you turn 65. Therefore, it's vital to assess your options and plan accordingly.
You may be eligible for benefits on someone else's record, which could impact your retirement plan. Additionally, you should evaluate whether you have any other income to sustain you if you decide to postpone receiving benefits. Finally, it's worth considering whether other family members qualify for benefits on your record, as it could impact your retirement income.
Are there ways for you to retain your benefits despite not working anymore? What about your income once your job disappears? Will you still be responsible for certain family members once you stop working? These questions and more are important to consider.
Irrespective of your age, exploring ssa.gov will enable you to understand your options and make the optimal decision. There are instances when the month you opt to begin receiving benefits could result in higher payments for you and your loved ones. You can arrive at an informed decision on when to apply for benefits based on your individual circumstances.
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