An article today from Sarah O’Brien on cnbc.com gives sound advice regarding social security benefits in retirement.
(visited June 30, 2016).
One of the big mistakes that can impact your social security is taking early benefits unnecessarily. Some people think that because they can begin receiving social security retirement benefits at age 62, that they should. This is characterized as a “land grab” mentality. However, it can result in decreased benefits.
A study from the National Retirement Institute shows that 30 percent of people already retired are receiving a benefit that’s less than they expected. This figure is up from 22 percent in 2015.
What people often do not realize is that taking social security benefits early can result in permanent reduction of benefits.
Suppose, for example, that your normal retirement age is 66, at which time you would receive $1,000 per month from social security. If you begin taking early benefits at age 62, your monthly benefits would be $750 per month instead. This would be a permanent reduction of 25 percent. The only way to reverse an early social security retirement decision is if you make the change within one year and refund the benefits you received.
It is important to remember that social security was never intended to fully fund people’s retirements. Rather, it is a piece of the overall retirement picture that should be understood as part of a comprehensive plan.
Most people’s full retirement age is between 65 and 67, depending on what year they were born. One thing that is important to know is that if you delay taking social security benefits beyond your full retirement age, those benefits can grow by 8% per year.
So, for example, suppose you would have received $1,000 per month at your full retirement age of 66. Then suppose you delay receiving your benefits until age 70. Beginning at age 70, your benefits would have grown to $1,320 per month. Or, suppose your full regular retirement benefits at age 66 would be $2,000 per month. By waiting to begin your benefits until age 70, you would receive $2,640 per month.
It is also important to remember that social security benefits are taxed, which often comes as a surprise to people. But no more than 85 percent of benefits are subject to taxation.
Another important thing to remember is that you can continue working after you begin receiving your social security benefits. Social Security will reduce your benefits by $1 for every $2 you ear above the annual limit. That limit is $15,720.
Of course, all of this assumes a lot. Health problems can be a big obstacle, as well as unforeseen needs making an early retirement decision a matter of necessity. But these overall points are important to keep in mind. It seems to make sense that if you are going to take early social security retirement benefits, make sure there is a sound reason to do so.
This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.