Becky Gillette – Some people eagerly await turning age 62 so they can apply for Social Security benefits. Yet delaying retirement to either your full retirement age (65 and above depending upon when you were born) or up to 70 years old can make a huge difference in the amount of Social Security benefits you receive over your lifetime.
Sheryl Garrett, CFP, founder of the Garrett Financial Network, spoke about getting the most from Social Security at a Financial Independence Day discussion group at the church at 17 Elk Street on May 22. Garrett said deciding when to take Social Security benefits it may be one of the most important financial decisions of your life.
Waiting as long as you can reap larger benefits is particularly helpful if you live a long life.
“If you wait to your full Social Security retirement age, your check will be 33 percent higher than if you start receiving benefits at age 62,” Garrett said. “It is 76 percent higher if you can wait until you are 70. A lot of people don’t have the choice and need the money earlier. And if you die at a younger age, then starting benefits early was the right thing to do. But if you have healthy lifestyle habits and come from a family where people are long lived, it doesn’t make sense to start Social Security early if you can possibly avoid it.”
Depending on when you were born, each year you delay taking Social Security can result in a 5.5 to 8 percent higher payment. Certainly that is a higher rate of return than you can make on interest on savings in a bank.
Garrett said while no one knows for certain their “expiration date,” one resource for calculating that is The Living to 100 Life Expectancy Calculator (www.livingto100.com), which uses researched medical and scientific data in order to estimate how long you will live. The calculator asks 40 questions related to your health and family history, and takes about 10 minutes to complete.
If you start Social Security before your full retirement age and continue working, you can lose a dollar in Social Security benefits for each $2 you make above $15,720.
If you start getting Social Security benefits and then change your mind in the first 12 months because you have enough other income coming in, you can pay back the benefits received and wait to reapply later when your benefit amount will be higher.
Garrett recommends the book, A Social Security Owner’s Manual by Jim Blankenship. The 4th edition of the book includes updates from the Bipartisan Budget Act of 2015 that impact Social Security benefits.
Blankenship said many people find upon filing income tax returns that a portion of their Social Security benefits are taxable, often up to 85 percent.
“It’s also often a surprise that since the benefit is taxable there hasn’t been enough tax withheld from other sources throughout the year – which not only requires you to pay up come April 15, but it can also cause a penalty for underpayment of tax to be applied,” Blankenship wrote. “There are ways to deal with this situation. It’s not required for you to withhold tax from each and every source of income. As long as you have enough tax withheld or timely estimated payments are made, it doesn’t matter the source of the money paid in.”
Some people may choose to retire at the earliest age because of lack of faith that Social Security will continue to be able to make payments as baby boomers retire – and as generally people are living longer –putting more of a strain on the system.
“There is no Social Security trust fund to pay benefits,” Garrett said. “Social Security is based on the general ability to tax people in the entire country. People think Social Security is guarantee, but it is not. It is a benefit that you paid taxes for.”
Garrett said changes are expected in the next 20 years to deal with the demographics of large numbers of baby boomers retiring. Some changes expected are increasing the age you can first receive benefit from 62, increasing the age of full retirement, including means testing so people with higher incomes won’t receive benefits, higher taxes on Social Security benefits, and possibly a 25 percent decrease in Social Security benefits.
There are concerns about the economic health of the U.S., which is closely tied to the world economy, which is showing signs of distress. But Garrett said when planning when to take Social Security, all you can do is go off the current rules.
“I think the world is in serious crisis, but we have to live with the current system,” she said. “You have to plan for how rules are today.”
More information is available at ssa.gov, including access to your earning records and estimated benefits at different ages of retirement.
Future meetings of the Financial Independence Group are planned at 9:30 a.m. at the church at 17 Elk St. June 5, June 19 and June 26. The program based on the book What Your Financial Advisor Isn’t Telling You by Liz Davidson is free of charge.