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Social Security - Decisions Made Now Can Affect You Later in Life

24 1 0 0 0 Peoria, IL
 

Wed Apr 01, 2015 13:56:00PM | Categories: Social Security
Elderly men sitting on a benchBy: Karen Beate
Deciding the best time to begin receiving your Social Security benefits is a decision every individual must address by themselves or with their family, but that does not mean there aren't a variety of tools out there that can help you determine the best way to get the most out of your Social Security. Every individual in America has a different financial situation and the time you should start drawing your Social Security benefits will depend greatly on your current and future financial outlook.

How much you saved outside of what you plan to get from Social Security, whether you have a pension, 401(k), or no retirement plan from your employment, is one of the most important factors in deciding when to begin drawing your benefits. If you have a solid financial foothold outside of your expected Social Security benefits then you have a lot more options in determining the best time to begin drawing your benefits compared to individuals who will be more reliant on their benefits.

Whether you own, rent, or are still paying off a mortgage also plays a role in determining the best time to draw your benefits. If you own a house and it is fully paid off then you may be more free to retire earlier than individuals who are still paying off their mortgages or renting their residence.

Your full retirement age depends on the year you were born, but drawing your benefits before that age does come with consequences. For example--if you were born in 1955 and wish to begin receiving your benefits at age 62, the first year you are eligible to begin receiving benefits, then you would only receive $741 out of every $1,000 you would have been eligible for had you waited to begin drawing your Social Security at the full retirement age of 67. This equates to a 25.8% reduction in lifetime benefits.

The reduction in benefits lowers for each year you wait to begin claiming your benefits. So if you waited until the age 65 to retire then your penalty would only be a 7.8% reduction in lifetime benefits. That adds up to being a lot of money in the long run. Individuals who are going to be more reliant on Social Security in their retirement may want to consider working longer to ensure they will be able to get the most out of their benefits after they retire.


Another important thing to consider is your finances outside of what you expect to receive for Social Security. Are you receiving a pension? Have a 401(k)? No retirement plan at all? Do you own, rent, or still paying off your mortgage? What about money in the bank for a rainy day? These questions and more will greatly impact your decision on when to begin drawing your Social Security benefits. It is important to have a firm understanding of your 'big picture' financial situation before choosing the best time for you to begin drawing your benefits.

In the end, it is up to the individual to determine when to begin drawing their Social Security benefits. There are a variety of factors you will need to take into account before you begin drawing your benefits, but also know that the Social Security Administration is also there to help you. Don't be afraid to ask them for assistance and guidance as you inch closer to retirement.

You can see the break down of when you would reach full retirement age by visiting the retirement planner page on the Social Security website.
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In the paragraph about "full retirement age" you state that if someone were to retire at 62 rather than waiting until 67 the person would see a 25.8% reduction in lifetime benefits. First, there is no limit on lifetime benefits; you receive benefits for the rest of your life. Second (and I never see this mentioned) if you receive $741 per month at age 62, you will be earning that for 5 full years before your full retirement age, which equals $44,460 (741 x 60). If you wait until 67 it would take you more than 44 months to recoup that much money. Plus, you would have that $44,460 to live on or invest. And, who knows how long you'll live?
Anonymous
305 days ago
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But if you took your social security at 62 but continued to work for the additional years it would take to even get Medicare, wouldn't you loss most of the difference in Taxes anyway?
Anonymous
336 days ago
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Take it "early" or "wait"? At 62, I can draw $1474 a month. At 66, I can draw $1924 a month. A $450 a month difference. 4 years at $1474 a month is $70,752 total. Divided by the "extra" $450 a month I would receive by waiting equals over 157 months or over 13 years to recoup the $70,752 that I did not take early. Making me 79 when I finally recoup the $70,752 that I waited on by holding off to age 66. REALLY? That equates to CRAZY! Good logic and correct math, Advice? Opinions? Thanks!
Anonymous
310 days ago
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Take your benefits at 62!
Anonymous
320 days ago
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did u read anything about congress/obama signng something into effect for SS in nov 2015 and it passed and would start may 1 2016?? thank u
Anonymous
286 days ago
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http://www.fool.com/retirement/general/2015/12/14/3-changes-to-social-security-in-2016.aspx
Anonymous
308 days ago
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what is this law please . i am not well verse in news and all that but i a 2 yrs shy of early retirement
Anonymous
314 days ago
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I am applying for retirement at 66 this year and before May 1. I am reading more about this law that will close all intended loopholes in the current social security law. So I will stress to social security that I would like to be grandfathered with the current law which I feel is correct and feel positive that my benefits will be based on the current law as it stands.
Anonymous
1 yr 308 days ago
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Good logic, but the math looks wrong. It would take 171 months or over 14 years.
Anonymous
1 yr 351 days ago
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the math is right it would be 8892 a year x 5 =44460.
Anonymous
340 days ago
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Anonymous 171 is right, you would only be "catching up" by $259 per month.
Anonymous
351 days ago
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171 months is correct