The Social Security benefits managed by the Social Security Administration (SSA) constitute a significant portion of the income for most retirees, making careful planning about when to start receiving your payments crucial. You can make the most of your Social Security benefits when armed with the right information to make the best choice for you. You may end up paying thousands of extra dollars after taxes if you do it right by coordinating Social Security payments with other sources of retirement income.
Social Security at Age 62 vs. Age 70
You can claim Social Security funds anytime between age 62 and age 70. You will receive a “full amount” known as the “primary insurance amount” or “PIA” at full retirement age. In 2020, this was age 66 and 2 months for individuals born between 1943 and 1954. Your payments will be lower if you begin receiving payments before age 66 and will increase if you start after age 66.
You can get the maximum payment amount if you wait until age 70 to start receiving payment. The monthly amount is 76% higher than what it would be if you started receiving benefits at age 62. Below is a table showing the monthly benefit amount received starting from age 62 to age 70 with a PIA of $1,000.
The Impact of Individual Life Expectancy
A single person who expects to live longer than average may benefit from delaying the receipt of payments for a period, while those who expect to live shorter than average benefit from receiving benefits early. In most cases, women benefit more from delaying benefits due to their longer life expectancies.
Studies suggest that total lifetime benefits are roughly equal for a person living to age 80, regardless of whether they started receiving benefits at any age from 62 to 70. The period from ages 80 to 82 is referred to as the “zero return age,” because it would be better for you to take Social Security payments later rather than starting early if you live beyond that range.
Drawbacks of Analyzing Zero Return Age
Although zero return age may be a vital part of comprehensive analysis, relying solely on it as the only factor in deciding when to start receiving Social Security payments is incorrect for several reasons.
Social Security acts as a crucial safeguard against depleting your assets. Research shows that delaying payments until age 70 can extend the duration of your finances from six to ten years. You might think you’ll live until about age 82, but what if you live to 92 healthy and productive? Delaying receiving Social Security payments can protect you from running out of money.
Focusing only on zero return age neglects the impact of taxes. If Social Security payments are your only source of income, you will not pay any taxes on them, but you may have to pay taxes on up to 85% of your benefits if you have other income sources.
You can opt to withdraw from your savings instead and delay starting your Social Security benefits. In many cases, this plan can significantly increase your monthly retirement income or extend the duration of your retirement funds when viewed from a post-tax perspective. You should run detailed tax projections to find the best way to withdraw funds to give you the largest after-tax income.
Test
Social Security Benefits
Another factor that often goes unnoticed is the earnings test. Individuals who are working for pay and still claiming benefits before reaching full retirement age will face a reduction in their monthly payments if their earnings exceed the allowable limit.
The reduction is temporary. Once you reach full retirement age (FRA), your monthly payments will be adjusted to compensate for the previous reduction. Due to the way benefits are recalculated, it may take 13 to 14 years to recover the reduced amounts. It’s always best to wait to claim benefits until you reach full retirement age if you plan to continue working.
Previous Marriage of 10 Years or More
Here’s another factor that single individuals should consider: if you were married at some point and your marriage lasted at least 10 years, you may be eligible to collect payments based on your ex-spouse’s work record. In this case, think about your decision to claim Social Security benefits the same way a married person would. You may be able to use the spousal benefit for a few years, then switch to your own benefits, or vice versa. Such a strategy can significantly increase your income over your lifetime.
Source: https://www.thebalancemoney.com/when-to-take-social-security-for-singles-2389043
Leave a Reply