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Tuesday, March 03, 2009

Will You Take Social Security at Age 62, 66 or 70?

by Tim Moore

Surprisingly, nearly 75 percent of workers take their Social Security benefits before full retirement age. While it makes sense to think that people might want to retire and leave the problems of work behind, it doesn^D>'t make sense for everyone to do this as early as they can. Taking Social Security benefits early makes the monthly benefit payment much lower than it would be if workers waited till their full retirement age.

Full retirement age is different for everyone, depending upon the year of their birth. It could be age 65, 66, or even 67 in some cases. While it may seem very challenging if not impossible to wait that long to take your benefits, it can definitely be worth it.

For example, if your full retirement age is 66 and you wait until then to retire, let's imagine you will get $1,000. If you don't wait, your benefits will decrease a full 25 percent. This means that you will only get $750 a month. The cut in benefits is quite significant and in today's economy the extra money is needed. As inflation rises, your Social Security benefits do not. If you take the $750 at age 62, you will always get $750. You will never get your full $1,000 a month payment.

On the other side of the spectrum, if you keep working past your full retirement age until age 70, you will get a 32 percent raise. Your benefits will be $1320 a month, for the rest of your life.

In overview, if you take $750 a month at age 62, you are losing 25 percent of your monthly check. If you can wait until age 70 to retire, you will get a 32 percent increase, which would make your amount almost double what it would be at age 62: $1,320.

With inflation and a failing economy, it makes sense to wait as long as you can for your Social Security benefits. While the price of living will increase, your benefits check will not.

Let me clarify what I mean by “a reduced retirement benefit taken at the age of 62 will never increase”. is that if an individual takes a reduced retirement benefit at the age of 62, they will never regain the percentage of reduction they took in order to receive their Social Security benefit early. An individual who receives a reduced Social Security retirement will still receive the yearly cost of living increase that all Social Security beneficiaries receive. Since I am clarifying what might increase the monetary amount of a reduced retirement benefit, I thought I should mention a couple other situations in which an individual’s reduced retirement benefit might be increased outside of cost of living raises.

Social Security considers every month prior to full retirement to be a reduction factor when an individual chooses to file for reduced retirement benefits. Most of the time, the beneficiary can never regain these months of reduction. There is one exception, and that is work activity.

If an individual who took a reduced retirement benefit at the age of sixty-two continued to work, they may potentially change the computation of their retirement benefit. If an individual continues to work over the annual earnings limit, Social Security will withhold enough monthly retirement benefits to recoup one out of every two dollars an individual is over the earnings limit prior to their year of full retirement. In the year of an individual’s full retirement, Social Security only withholds one of every three dollars they are over the annual earnings limit. In fact, in the year of full retirement an individual is only held to the annual earnings limit for the months prior to their full retirement month. After that time, Social Security does not care what they earn.

To make a long story short, any months Social Security could not pay an individual because of their work activity will be used to recalculate their monthly retirement benefits at full retirement age. Some individuals may have several months that they were not able to collect Social Security retirement monthly benefits due to their work, thus their benefit will increase in the year of their full retirement.

Social Security will recalculate their percentage of reduction by considering all the months that they were not paid their retirement benefit. Although, unless an individual was prevented from receiving any monthly retirement checks, their benefit will still be reduced when compared to a full retirement benefit.

There is one other way, I could possibly foresee an individual’s reduced retirement benefit increasing even if an individual has not gone over the annual earnings limit but they have continue to work.

Social Security bases an individual’s retirement benefit on the best thirty-five years out of the last forty years of earnings. This means there are high and low years in most individuals earning records. Consequently, an individual may receive a notice that their retirement benefit has been increased based upon their prior years earnings. This simply means that the individual’s yearly earnings have taken the place of a low year in their earnings computation, thereby creating an increase in their retirement benefit.

Reference: Tim Moore is a former Examiner for the Social Security Administration. He has a website that provides information on the SSD and SSI disability system and which also provides a Social Security Disability FAQ.

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