Showing posts with label what age should you collect Social Security. Show all posts
Showing posts with label what age should you collect Social Security. Show all posts

Tuesday, August 15, 2023

The Best Age to Claim Your Social Security - A Few Things to Consider

During the Covid pandemic, many people were forced into retirement earlier than they had planned.  The same situation often happens to people at other time, such as when they become seriously ill, or they need to retire to care for a family member or deal with other problems.  Unfortunately, when people take their Social Security benefits early, this decision will have an impact on them for the rest of their lives. However, in a crisis such as an international pandemic, a job loss, or a medical crisis, most of us have to do whatever we can to survive.

Fortunately, most people are able to wait and collect their Social Security benefits when they think they are financially prepared for retirement. Since people can begin to collect their Social Security retirement at any time between ages 62 and 70, what is the best age? Below are a few issues to consider.

Should You Collect Before Your Full Retirement Age?

As mentioned before, in a crisis you should claim your benefits if it is truly a matter of being able to pay your rent, buy groceries and survive. In addition, if you have a terminal illness and do not expect to live more than a few more years, then collecting early makes sense.  In these situations, many people claim their benefits as early as age 62, or may claim them just a couple of years early, such as at age 64.

However, if you claim your benefits before your full retirement age of about 66 or 67, your income will be reduced by as much as 30% every month for the remainder of your life, especially if you begin collecting benefits at age 62!  If you are able to postpone claiming your benefits for a couple of years, it could benefit you substantially in the future.

If you want to estimate the exact amount you will lose by collecting early, here is an explanation from - the website for the Social Security Administration:

"In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent."

As a result of this substantial reduction in your retirement benefits, you need to think carefully if you are considering collecting your benefits before your full retirement age. 

Should You Collect Social Security at Your Full Retirement Age?

In general, most people should wait AT LEAST until their full retirement age of 66 or 67. By age 65, you will be eligible for Medicare, which reduces the cost of medical insurance for many people. 

The government estimates that if you expect to live until age 82 years and 6 months or less, you are better off starting to collect your Social Security benefits at your full retirement age.

Should You Wait Until Age 70 to Collect Your Social Security Benefits?

Many retirees will be better off if they can postpone their retirement until after their full retirement age, up to age 70. This is because about one-quarter of men and one-third of women will live until they are 90 years old or older

If you believe you will live longer than age 82 1/2, then you are better off waiting to collect until age 70, because your benefits will increase by 8% a year for each year after 66 or 67 that you defer collecting your benefits. If you are healthy in your late 60s and have a family history of long-lived relatives, you will probably be better off waiting to collect your Social Security benefits until you are 70.

How Does Your Decision Affect a Dependent Spouse?

The longer you wait to collect your Social Security, the better off a dependent spouse will be, as well. This is because they can collect an amount equal to 50% of your benefits when they reach their own full retirement age and, if you die before they do, they can get their benefits increased to an amount equal to your full benefits, as long as they wait until their full retirement age before they begin to collect. 

If your spouse had low earnings during their lifetime, this could make a significant difference in their later years. As a result, waiting until age 70 will not only benefit you financially, but also your dependent spouse. Therefore, even if you do not expect to live past 82 1/2, but you believe your spouse will, it may still be a thoughtful decision to postpone collecting your Social Security benefits as long as possible.

Here's an example of how this would work.

Let's say you would receive $2,000 a month if you collect at age 67, but would collect around $2,500 a month if you wait and collect your benefits at age 70.

Your dependent spouse who waits to claim their benefits at age 67 would be able to collect $1,000 a month if you start collecting at age 67, but they would be able to collect around $1,250 if you wait to collect at age 70.

If you collect your benefits at age 67, your benefits as a couple would be around $3,000 a month.  If you collect at age 70, and your spouse waits until at least age 67, your benefits as a couple would be around $3,750.  If you die before your spouse, they would be able to collect $2,500 a month rather than $2,000.  

These are round numbers, because your actual amount would be based on your lifetime earnings plus the annual cost-of-living increases.  However, you can see from that example that waiting as long as possible before you retire could make a substantial difference in your quality of life as you age.

Speak to a Financial Planner

Before you make a final decision about when to collect your Social Security benefits, discuss your options with your financial planner. They can help you decide if you would be better off financially by living off your retirement savings for a couple of years, if necessary, in order to postpone collecting your Social Security. Many financial planners have computer programs which will calculate your various options, help you predict your longevity, and assist you in planning your long-term financial situation regardless of how long you live.  You want to be well informed before you make a final decision.

While people who have a traditional retirement IRA will be required to take a RMD, or Required Minimum Distribution, in their 70s, they are NOT required to spend that money.  You can remove the money from your IRA and reinvest it for as long as possible, so that you continue to build your assets until you absolutely need to use them.

You Might Need a Side-Gig

Many retirees are picking up small part-time jobs or side-gigs to help them get through their retirement years, while minimizing how much money they need to draw from their retirement savings. Doing something like this can bring you peace-of-mind so you worry less about running out of money when you are near the end of your life.  

Order from 

As many of the readers of this blog know, I have set up an Etsy store as a fun way to help others and supplement my own retirement income.  One example is the lovely anniversary necklace you can see shown here.

You can even have the message on the card inside the gift box personalized with whatever message you would like to share with a loved one.

 You can check it out at:

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If you are interested in learning more about retirement, Medicare, Social Security, common medical issues as we age, financial planning, where to retire and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional helpful articles.

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Photo credit: AARP and

Wednesday, September 20, 2017

Social Security Myths and Misunderstandings

We have all read a host of discouraging news stories about Social Security, including that it is going bankrupt, people are living too long, and everyone should collect their benefits as soon as possible.  Many of these articles are unhelpful because they are based on distortions and myths about Social Security. These misunderstandings can cause people to make poor financial decisions which may hurt them for the rest of their lives.  As a result, I was pleased to see an article addressing these Social Security myths in the September 11, 2017 issue of the highly reputable business newspaper, Barron's.

You may want to look for the issue yourself at your local news stand or library.  However, here is a brief summary of what they had to say about the six most common myths about Social Security, as well as my comments:

Myth: "Healthy Payment Hikes are Back"

Although the COLA or cost-of-living increase for 2018 will be larger than what retirees have seen in recent years, when it has ranged from 0 to 0.3 percent, it is still smaller than the average increase of 2.6 percent which retirees saw over the past 30 years.  The 2018 COLA will only be 2 percent. Unfortunately, recent increases have been so low that the Senior Citizens League estimates Social Security benefits have lost 30 percent of their purchasing power since 2000.  While any increase at all is better than nothing, many senior citizens are finding that it is becoming increasingly more difficult to survive on Social Security.

Not mentioned in the Barron's article is the fact that all or most of the COLA in recent years has been eaten up by increases in Medicare premiums.  This will be true in 2018, as well, when the Medicare premium for most people will increase to approximately $134.  As a result, many retirees have seen virtually no actual increase in their checks over past few years and that will continue to be true in 2018.

In fact, Medicare increases sometimes jump if your total retirement income rises too much.  Sudden increases in retirement income, because of an unusually large IRA withdrawal or windfall, can cause your Medicare premiums to increase dramatically and retirees should consult their tax attorney and take into consideration all of the financial consequences of a large IRA withdrawal or income increase. However, the Medicare premium increase should only apply to the year following the increase in income, unless it is permanent or continues for several years. This will only apply, however, to people who have a very large increase in their retirement income.

Myth:  "Social Security is Going Broke"

There is NO danger that Social Security will completely run out of money, because people are continually paying into the program.  The trust fund, which supplements the amount brought in by current workers, has enough money to pay full benefits until 2033.  After that, the Social Security Administration could still pay out 77 percent of promised benefits until 2090 and 73 percent of promised benefits after that, just based on the ongoing payroll deductions of the workforce. Those lower payments would only happen if Congress does absolutely nothing to fix the problem. Most experts believe that if Congress increases the amount of Social Security taxes withheld from paychecks, slightly postpones the full retirement age or makes a few other small changes discussed later in this article, full benefits could be paid out for many decades in the future. 

Myth: "American Longevity is the Reason Social Security is Having Financial Problems"

This may surprise many people, but U.S. longevity for people over the age of 65 has not increased very much over the past few years.  In fact, the Barron's article reported that in 2015 longevity for Americans over 65 decreased for the first time in over 20 years, according to the Centers for Disease Control and Prevention.  In fact, according to an October 27, 2017 post by @Tad_Doughty, who manages several hundred million dollars in assets:

"The U.S. age-adjusted mortality rate -- a measure of the number of deaths per year -- rose 1.2 percent from 2014 to 2015, according to the Society of Actuaries.  That's the first year-over-year increase since 2005, and only the second rise greater than 1 percent since 1980.  At the same time that Americans' life expectancy is stalling, public policy and career tracts mean millions of U.S. workers are waiting longer to call it quits.  The age at which people can claim their full Social Security benefits is gradually moving up, from 65 for those retiring in 2002 to 67 in 2027."

In other words, people are retiring later and dying sooner.

The real problem in maintaining Social Security payments is that fewer children are being born and this will cause a sharp decline in the number of working adults by 2035.  This is the actual reason why it may be necessary to slightly increase Social Security taxes or make other changes.

Myth:  "Social Security is Too Dangerous for Congress to Touch"

The Barron's article indicated that this is a myth because Congress has made changes to Social Security in the past, most notably in 1983.  According to Barron's, any one of the following possible changes, or a combination of them, would solve the problem:

* Decrease the promised benefits by 20% for those who have not yet retired OR
* Increase the Social Security payroll tax, which is split between the employer and employee, from 12.4 percent to 15.2 percent OR
* Raise the income cap on Social Security taxes above its current level of $127,200. In 2018, the income cap will rise slightly to $128,700.  However, over 18 percent of earned income is currently exempt from Social Security taxes.
* Not mentioned in the Barron's article, but something which has been suggested by other experts, is the idea of further postponing the full age of retirement so that people are not eligible for their full benefits until age 68 in 2027 and the increase to age 67 be moved to an earlier date.

If citizens would like to save Social Security, they need to encourage Congress to vote on a Social Security package which would include one of the above changes or a combination of the above changes which would be less extreme than any single recommendation.  For example, they could raise the income cap to $200,000 or more, with significantly larger increases in the income cap in future years.  This would allow them to only slightly raise the payroll tax.

Myth:  "Start Collecting Your Benefits as Young as Possible

While it may be necessary for some people to collect early if they are dying or in such bad health that they can no longer continue to work, the vast majority of people need to worry more about how to maximize their income in their 70s and 80s.  The best way to do this is to postpone collecting as long as possible.  You can learn more about the advantages of waiting by using the benefits calculators on either the AARP or the Social Security websites.

The Barron's article also discussed confusion surrounding complicated schemes for maximizing your benefits by using the restricted application loophole.  However, this loophole only applies to people born prior to Jan. 1, 1954, many of whom are already collecting their Social Security benefits.  An earlier loophole called file-and-suspend has already been closed and the restricted application loophole will close over the next few years.  If the restricted application loophole interests you, you may want to do further research on the benefits of this plan and see if it will work for you.

The most important information which you may glean by reading the full Barron's article, titled "6 Myths of Social Security," is that the current Social Security problems are solvable, if Congress is willing to make the necessary minor adjustments.  In addition, most people would benefit by postponing their benefits as long as possible in order to maximize their income in their 70s, 80s and beyond, especially since the value of the benefits have declined dramatically in purchasing power over the past two decades.

If you are interested in learning more about Social Security, Medicare, financial planning, where to retire, common medical problems and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

Watch for my book, Retirement Awareness: 10 Steps to a Comfortable Retirement, which will be published by Griffin Publishing early in 2018.

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