There's no way to know the perfect time to begin collecting Social Security benefits. However, the age at which you begin receiving benefits will affect how much you receive, so you should weigh the options carefully.
Keep in mind that if you collect Social Security before your full retirement age (FRA), your benefit will be permanently reduced. Depending on the year you were born, you'll receive between 25 and 30 percent less per month if you start benefits at age 62 than if you wait until your FRA. However, this doesn't mean collecting benefits at age 62 is unwise. In fact, unless you live to an especially old age, you may end up with more money if you start collecting Social Security benefits at age 62, because you'll receive more benefit checks.
There are also good reasons to wait until full retirement age—or beyond—to start collecting benefits. For example, if you work full-time past age 62, you'll have the opportunity to increase your eventual retirement benefit, particularly if you are in your peak earning years. Your benefit is calculated using your 35 highest years of earnings.
If you are working, collecting Social Security and are not at FRA, you may have to pay back some of your Social Security. This is done by reducing the amount you collect until you reach FRA. If you can wait until FRA to begin collecting benefits, you may receive delayed retirement credits—up until age 70—that will permanently increase your benefit. If longevity is in your genes and you have the financial resources to delay benefits, doing so may be worth it. And don’t forget that under current tax law, up to 85% of your Social Security benefits may be taxable.
Other things to consider include whether other people will be eligible to receive benefits based on your work record, your eligibility for Medicare, your estimated life expectancy and income taxes. The Social Security Administration (SSA) has several online benefit estimators available at ssa.gov that can help you make an informed decision.
You can sign up at the SSA website for a “My Social Security Account” so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor and disability benefits. If you're not registered for an online account and are not yet receiving benefits, you'll receive a statement in the mail three months before you turn age 60.
As always, keep in mind that Social Security was never meant to be the only source of income for those in retirement. You'll want to save for retirement on your own and start as soon as possible—even setting aside a small amount each month can add up over time. In addition, consider using a tax-advantaged vehicle like an Individual Retirement Account (IRA) or an employer-sponsored 401(k) plan as a way to save.
What’s best for others may not be the optimal choice for you. Outlining your options for Social Security, and the impact on your future financial well-being and legacy can be a complicated process. The professionals at Busey Wealth Management are here to help you plan for your financial future with expert advice and tailored solutions. Learn more at busey.com/wealth-management.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.
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