Social Security means different things to each of us depending on our stage of life. When we are younger, we may not like having to pay into a program that seems far off before we receive benefits. When we are older, we worry about the monthly benefit we will receive during retirement. I do not intend to debate whether/when the Social Security trust fund will bust. I believe benefits will continue to be paid no matter what stage of life you are in now. I do believe that without some change benefits will be less than what is currently paid out.
Younger people should keep in mind that Social Security will pay disability benefits should they become disabled due to accident or illness. When you are young you don’t think this can happen to you but as you get older you will see your peers affected. This provides a small safety net should it happen to you.
Older people will have decisions to make as they reach their 60’s. Should they take early benefits at 62, wait until full retirement age or wait until age 70. The answer will be different for everyone depending on their situation.
Some will want to take early benefits, reasoning that they want to get while the getting is good. No one can predict the future. If you wait to take benefits and you die, you will “lose out” on the monthly benefit you could have taken. Whether you want or need to continue working will also be a factor in deciding to take early benefits as there is a cap on the amount you can earn before having to repay some of the benefits.
If you wait until full retirement age there is no cap on the amount you can earn. The benefits or a portion of them will be subject to income tax but you won’t have to repay if you earn more than the cap applied to early benefits. Full retirement age is a sliding scale depending on your birth year. Full retirement age used to be 65. Now it will be 67 but it is being phased in depending on your year of birth. Full retirement age for anyone born in 1960 or later is 67. Anyone born between 1943 and 1954 will reach full retirement at 66. Between 1955 and 1959, full retirement will be 66 years and x months.
You can wait to take Social Security benefits later than your full retirement age. Each year you wait will increase your retirement benefit at full retirement age by 8%. But this increase ends at age 70. There is no incentive to wait longer than that age. For someone that wants to keep working and can earn enough to meet their financial needs, waiting to take benefits can be attractive.
The decisions to be made regarding Social Security benefits and when to take them can be complex and we have not touched upon spousal benefits yet. You may want to discuss your options with a trusted advisor.
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