Applying for Social Security benefits is a pretty simple process, according to Investopedia’s recent article, “When To Apply For Social Security Retirement Benefits.” The earliest you can apply is when you are 61 plus nine months, or four months before benefits are scheduled to begin. Your first Social Security payment will occur four months later, which is going to be the month after you celebrate your 62nd birthday. After that, benefit payments arrive after every full month that you are eligible, if you apply as soon as you are eligible.
Another Facet of Social Security to Learn: The Earnings Test
The Social Security earnings test is a way that the agency determines the limit of the amount of money individuals who have not yet reached full retirement age (FRA) can earn, while they are collecting Social Security retirement benefits.
For 2018, for every two dollars that a worker who has not yet reached FRA earns over the annual threshold limit of $17,040, Social Security will withhold $1 from your benefits.
The Social Security benefit threshold rises significantly (to $45,360 in 2018) in the year you attain your full retirement age (FRA). At that point, one dollar will be withheld for every three dollars you earn over that threshold. The earnings limit is effective the first of the year and indexed annually.
Investopedia’s recent article, “How the Social Security Earnings Test Works,” says that everyone getting Social Security benefits prior to their full retirement age is subject to the earnings test—even widows and widowers receiving survivor benefits and minor children receiving benefits on a deceased parent’s record, if the child earns more than the annual limit. If a minor child is receiving benefits based on a parent’s work history and the parent is still living and under full retirement age, the earnings test for the child’s benefit will be subject to the amount earned by the parent.
How Taking Social Security at 62 Makes Sense in Some Tax Brackets
It’s annoying. There’s no way around it. You’ve worked your whole life, and paid taxes on those earnings. Now you have to pay taxes on your Social Security benefits. However, depending on your asset level, you may want to start getting those benefits earlier, says this article from Kiplinger, “Why Wealthy People May Want to Take Social Security at 62.”
There are many good reasons to wait and take Social Security at full retirement age to get the full benefit amount. In waiting longer to file, the benefit can grow 8% a year from full retirement age to age 70. However, this one-size-fits-all advice may not be appropriate for everyone, especially for the wealthy.
How to Balance Working with Social Security Benefits
If your retirement plan includes working, even if only part time, make sure to know your income limits. At a certain point, your earnings will either cause Social Security to be reduced, or you might end up paying more in taxes.
Investopedia’s recent article, “How Working Affects Your Social Security Benefits,” says that when you’re retired, if you claim at your full retirement age (FRA), you are entitled to receive 100% of your benefits from Social Security (that age varies based on your year of birth). Those individuals turning 62 in 2018, will be able to fully retire at 66 and four months and begin collecting Social Security.
Be Smart About Social Security
Yes, you’re eligible to start taking social security benefits when you turn 62. However, that doesn’t mean you should. The longer you can delay claiming benefits, the better. In fact, if you start getting benefits too soon you could put a good-sized dent in your overall benefits.
CNBC’s recent article, “This is when it makes sense to claim Social Security early,” explains that if you wait until full retirement age (usually either 66 or 67, based on when you were born), you’ll receive 100% of the benefit available to you based on your personal work record. If you wait until age 70, your retirement benefits will also be even more, because delaying past full retirement age lets your benefits grow by 8% per year until you reach that age.
Wait, Social Security Benefits are Taxed?
Depending on the amount of other income and Social Security benefits, those benefits are included with other taxable income. It could be 85%, 50%, or zero. There are steps you can take to reduce your tax exposure. However, it takes planning and knowing the formulas.
Investopedia’s article, “How to Avoid the Social Security Tax Trap,” explains what’s includable in Social Security income and what’s taxed.
To know if your Social Security benefits will be partially taxed or fully tax-free, you need to use these formulas. Add up your gross income with certain adjustments. This is the amount from line 21 of Form 1040. Then add back any excluded income from interest on U.S. savings bonds used for higher education purposes, employer-provided adoption benefits, foreign earned income or foreign housing and income earned by residents of American Samoa or Puerto Rico.
Making the Right Decision on Social Security Benefits
Mapping out your financial situation for retirement? Social Security benefits undoubtedly play a big part in your calculations. Do you know what your best options are? Filing early for benefits—like as soon as you turn 62—is rarely the best move. You may be eligible, but, according to this article from CNBC, “Here’s when it makes sense to claim Social Security early,” taking benefits this early will reduce not only your lifetime earnings overall, but your monthly checks as well.
Who is Most Worried about Social Security?
Not surprisingly, pre-retirement adults age 50-64 are the largest group of American adults worried about the Social Security system: 51% expressed worry to pollsters.
It’s a different view from another generation, as reported in Think Advisor’s article, “Older Pre-Retirees Worry a Lot About Social Security: Gallup.” Just a third of young adults, expressed a great deal of concern about the system.
Gallup conducted telephone interviews in March with a sample of about 1,000 adults living in all 50 states and DC. The data showed that 44% of Americans worry a “great deal” about Social Security, 28% worry a “fair amount,” 17% “only a little” and 10% “not at all.” Social Security ranked in the middle of a list of 15 issues or social problems the respondents were asked to rate in the poll. The survey participants said they were most worried about the availability and affordability of health care.
Mortality Rates Might Make You Think Twice About Claiming Social Security
Before you decide to retire at age 62 and start taking Social Security benefits, you may want to dig a little deeper into the statistics, especially if you are a man.
“Your life might depend on your decision,” MarketWatch notes in its article, “Why early retirement can be a killer.”This is because there’s a significant increase in mortality among men who retire at 62 and begin receiving Social Security, according to a new study that recently was distributed by the National Bureau of Economic Research.
The Most Important Decision about Social Security: When?
The challenge of retirement planning is that once a big decision is made, you don’t have three or four decades to fix any mistakes. The same holds true for deciding when to take your Social Security payments. Taking it out too early, can have a long term negative impact.
Kiplinger notes, in its June article, “What to Consider Before Filing for Social Security Early,” that some Americans are beginning see the financial benefits of waiting for their full retirement age (between 66 and 67 based on your birth year). But others don’t wait because you can take them as early as 62 with reduced benefits.