By Jamie Bosse
Will you be blowing out 62 candles on your birthday cake this year? If so, you are probably being bombarded with information regarding whether or not you should file for Social Security benefits now, wait until full retirement age, or postpone beyond retirement age.
You can begin taking benefits as early as age 62, but the amount you receive each month will be much less that what you would receive if you started benefits at full retirement age (roughly 25% less if you begin at age 62). You can also delay your benefits beyond full retirement age to age 70. This will result in larger benefits (you get an 8% increase each year that you delay beyond full retirement age).
Basically, your choice is to receive fewer checks for bigger dollar amounts or more checks for lower dollar amounts. So when do you “break even”? Break even age depends on several factors: the amount of your benefits, tax considerations, inflation, opportunity cost, etc. The approximate break even age for most people is around age 80.
Here are a few tips we recommend you consider as you make this important decision:
1. Life Expectancy (and the life expectancy of your spouse if you are married)
Since no one has a crystal ball to predict how long you will live, you should estimate your life expectancy based on your health and family history. If your family members tend to beat the average life expectancy, waiting to collect a larger benefit might be the way to go. On the other hand, if you are in poor health or have reason to believe that you will not beat the average life expectancy, you might decide to take what you can get while you can. If you are married, you have to consider the life expectancy of your spouse as well – especially if you are the high income earner. For instance, if you elect to take a reduced benefit at age 62 and you pass away before your spouse, they will have to live with a reduced benefit for the rest of his or her life.
2. Cash Flow Needs
It can be tempting to take Social Security as soon as you are eligible, but make sure you are considering the long term effect on your cash flow. If you can afford it, waiting is often the better option. Make sure you are considering your other assets and sources of income when making your decision. If you have investment or savings accounts, a pension, or other sources of income, work with an advisor to develop a plan of where to draw the cash flow from in your retirement years.
3. Are you Still Working?
If you begin taking Social Security before your full retirement age, earning income (even through self-employment), could significantly reduce your benefit. For example, if you are still working and haven’t reached your full retirement age, your benefits will be reduced by $1 per every $2 you earn above the annual limit ($15,480 in 2014).
Don’t make this important decision on your own. We recommend seeking the advice of a qualified professional. Take advantage of all of the articles and online calculators that are available on this topic. Work with a financial advisor and the Social Security office to make sure that you are maximizing the benefits available to you and your family.
For help with a plan that addresses your specific needs, schedule a meeting by clicking below, contact Jamie Bosse –jbosse@makinglifecount.com, or call (913) 345-1881.