Social Security: Know the Variables

It's never too early to understand how it works

Determining the best time and best way to take Social Security benefits can make a big difference in the amount you receive over the balance of your lifetime. What is prudent, is understanding how it works and, if appropriate, running calculations prior to making your benefit decision. Here are some things to consider.​

Full retirement age is quickly becoming 67. Your full Social Security retirement benefit can be claimed when you reach your target retirement age. This is age 66 for those born between 1943 and 1954. Those born after 1954 have their full retirement age increase by two months per year until full retirement age becomes 67 years old for those born in 1960 or later.

Taking it as early as 62. You may begin taking your Social Security benefit as early as age 62. But if you do so, your full retirement benefit amount will be reduced for each month you are short of your full retirement age. The Social Security Administration estimates up to a 30% reduction in your benefits if you choose to take benefits when you reach age 62.

Delaying the benefit up to age 70. After your full retirement target age, for each year you delay the start of receiving your Social Security retirement benefits (up to age 70), the benefit amount increases by approximately 8%.

Receiving survivor benefits. If a spouse dies, the surviving spouse is eligible to receive a Social Security Survivors benefit. The survivor benefit can be collected by as early as age 60. However, the benefit received is reduced for each month the survivor is short of their own full retirement age. You may not receive both a Survivor Benefit and your own Social Security retirement benefit, but you can switch from Survivor's Benefits to your own retirement benefits and vice versa.
Taxability of benefits. Up to 85% of Social Security Benefits can be taxable. This can happen when you still work or are taking taxable funds out of retirement accounts.

Life expectancy comes into the calculation. Once you start your Social Security benefits, you will receive them until you pass away. Receiving benefits at an earlier date means receiving more payments over your lifetime, but at a lower benefit amount. Delaying the start means fewer, but higher, payments during your lifetime.

Benefit reduction risk. In addition to having your benefits subject to tax, you can also have your benefits reduced. This may occur when you are not at your full retirement age and you are also receiving wages or business income subject to Social Security tax.

Spousal benefits. Another variable to consider is the availability of receiving spousal benefits instead of receiving your own Social Security retirement benefit.

So what is your best bet? The best tip for all of us is to know how it works long before retirement and develop a plan before you begin receiving Social Security benefits.

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The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
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Mia Verc, CPA;  Janice Papais, CPA