Planning for Social Security benefits

Published 10:25 pm Thursday, April 10, 2014

By Mark U. McGahee

One of the primary determining factors of the size of your Social Security retirement benefit is the age you are when you start receiving it.

You become eligible to receive your benefit when you turn 62. But is it the best way to celebrate your 62nd birthday by receiving the Social Security benefit, or would you be better off to wait until your full retirement age, or even later, say to age 70? It depends on several elements unique to your circumstances and needs.

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If you were born between 1943 and 1954, your full retirement age is 66. There is an incremental change for those born between 1955 and 1959, until it reaches 67 for those born in 1960 and after.

If your full retirement age is 66 and you start your benefit at 62, your benefit is permanently reduced by 25 percent. If your FRA is 67, and you start at 62, the permanent reduction is 30 percent.

Conversely, you are rewarded by 8 percent per year beyond your full retirement age by delaying your benefits until your 70th birthday. For perspective, assume your monthly full benefit is $2,000. If you start at 62, it will be only $1,500; if you wait until age 70, it will be $2,600.

If you decide to receive your benefits before your full retirement age and you continue to work, you could be in for a surprise. If you are working and receiving Social Security benefits in 2014, and you will not reach full retirement age this year, your benefit will be reduced by $1 for every $2 you earn above this year’s limit of $15,480. If you are working and you will reach full retirement age later this year, your benefit will be reduced by $1 for every $3 you earn above $41,400 until the month you reach full retirement age. Beginning then, there is no limit on your earnings.

How do you decide when to begin receiving your SS benefits? Begin by examining your projected monthly benefit. You can do this at www.ssa.gov. If you haven’t set up an account at that website, you may do so by following the simple instructions.

You will see your benefit projections for age 62, your full retirement age and age 70. You will also see what your benefit would be if you were to qualify for disability benefits from Social Securty, as well as survivor benefits for your family.

Now that you have some numbers, assess your personal situation. Are you content with your job? What does your spouse think? How is your health? What is the health history of your family? Will you receive a pension from a defined benefit plan? Do you have a 401k plan or an IRA with sufficient assets in it to provide enough income? Do you have other sources of income, such as rent or annuity proceeds? Are you the named beneficiary of a trust? Have you made provisions for long-term care needs for you and your spouse yet?

Consider this: A person whose full retirement age is 66 and begins receiving Social Security benefits at age 62 experiences a permanent “pay cut” of 25 percent by not waiting four more years to start.

By age 75, the cumulative benefits are roughly the same for the early beginner, and the one who waited until FRA. The difference is that the one who waited will always have the larger check.

Mark McGahee may be reached at 757-539-9465 or mmcgahee@isgva.com.