In our last social security blog, we covered the impact of your age at retirement on your benefits.
Among the many factors that you will want to consider related to taking your Social Security, the following are some of the more significant ones: current cash needs, current health, family longevity, working in retirement, other sources of retirement income, and spousal benefits.
Current cash needs
If you don’t need your benefits immediately, you may want to delay in order to collect delayed retirement credits and build your payment.
Current health
If your health is not good overall, you may want to start collecting benefits sooner than later. In the alternative, of course, if you health is good, you should consider postponing until FRA or later.
Family longevity
If your family has a history of long lives, your expectation may be greater for your own longevity. In this case, it is most advisable to plan for the long term. Consider delaying collecting your benefits as long as possible, as you may need the extra money more in later years, particularly if you outlive pensions or annuities with limits on how long they are paid. It’s worth noting that many of us will live much longer than the “average” retiree, and most women live longer than men.
Working in retirement
You can continue to work and still get retirement benefits. Your earnings in (or after) the month you reach your full retirement age won’t reduce your Social Security benefits. If you draw benefits before full retirement, however, they will be reduced if your earnings exceed certain limits for the months before you reach full retirement age.
SSA provides the following example: If you’re younger than full retirement age, SSA will deduct $1 in benefits for each $2 you earn above the annual limit. In the year you will reach your full retirement age, your benefits will be reduced $1 for every $3 you earn over an annual limit until the month you reach full retirement age.
Once you reach full retirement age, you can keep working and – no matter how much you earn — your benefits won’t be reduced.
Other sources of retirement income
Most financial experts estimate that you will need 70-80 percent of your pre-retirement income to have a comfortable retirement, and Social Security replaces only about 40 percent of preretirement income for the average worker. As a result, having pensions, savings, and investments will be important to your decision-making process.
Spousal benefits
Spouses who never worked or have low earnings can get up to half of a retired worker’s full benefit. If you’re eligible for both your own retirement benefits and spousal benefits, SSA will always pay your own benefits first. If born before January 2, 1954, and your benefits as a spouse are higher than your own retirement benefit, you’ll get a combination of benefits equaling the higher spouse benefit.
Under a law passed in 2015, however, people born on or after January 2, 1954, no longer have this option. If they qualify for both their own retirement and spouse’s (or divorced spouse’s) benefits, they must apply for both benefits.
Your spouse may be eligible for a benefit based on your work record, and it’s important to consider Social Security protection for widowed spouses. Married couples at age 65 today would typically have at least a 50-50 chance that one member of the couple will live beyond age 90. If you are the higher earner and delay starting your retirement benefit, it will result in higher monthly benefits for the rest of your life and higher survivor protection for your spouse if you die first.
When you start your retirement benefits also affects the amount your surviving spouse may receive.
- If you start your benefits before full retirement age, your surviving spouse will not receive the full benefit amount from your record.
- If you start your benefits after full retirement age, your surviving spouse may receive your full benefit amount plus any accumulated delayed retirement credits.
Looking back
In these two blogs, we have covered just a few of the factors that can affect your decision when to retire and the effects of your decision on the benefit amount.
As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime. If you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them. If you retire late, you will get benefits for a shorter period of time but the monthly amounts will be larger to make up for the months when you did not receive anything.
That said, this decision is very personal, emotional, and involves many complicated and often conflicting factors. The most important thing to remember is that there is no right decision other than exactly the one you make for yourself.
We have found that talking through your upcoming decision with a trusted advisor helps. For more information on when to begin your Social Security benefits, we encourage you to visit the Social Security website and to consult your LaPorte CPA, who will be familiar with your financial circumstances and can help you in determining the best time to start taking Social Security benefits.
For more information, please visit our first blog on this topic, “Getting Ready for Social Security Part 1: Retirement Age Considerations.”