Marc A. Hebert's Money Sense: What to consider if thinking of taking Social Security benefits at 62By MARC A. HEBERT
September 15. 2017 9:21PM
If this is your year to turn age 62, it is also your year to consider collecting Social Security benefits. Age 62 is the earliest you can receive benefits, but the real question is, should you start doing so?
If you decide yes, you are not alone. According to the Social Security Administration (SSA), approximately 72 percent of Americans elect to receive their Social Security benefits early.
Social Security benefits are based on a formula that uses the number of years you have worked and the amount you earned each year. Your 35 highest years of earnings are considered. Given this, working longer may give you the chance to substitute a year of higher earnings for a year of lower earnings. This could translate into a higher benefit.
If you plan on working after age 62 and do decide to collect, there is an earnings limit to consider. If you are under full retirement age for the entire year, your Social Security retirement benefits are reduced $1 for every $2 you earn over the annual earning limits ($16,920 in 2017). A different limit will apply during the year you reach full retirement age. It isn't a total loss because Social Security recalculates your benefits when you reach full retirement age. After full retirement age, you can earn as much as you want without an offset.
At age 62, your monthly check is lower than it would be if you had waited until your full retirement age, which ddepends on the year you were born. If you were born between 1943 and 1954, your full retirement age is 66 years. If you were born in 1958, your full retirement age is 66 years, 8 months. The reduction in early benefits is 25 to 30 percent.
Though there is a reduction in benefits, you will receive this amount for a longer period than you would have had you waited to collect. There is a break-even point between the two at which waiting begins to outweigh the value of the reduced benefits. This break-even age is generally about 12 years from your full retirement age. At age 66, for example, you should reach your break-even age at 78.
Of course, no one can predict how long he or she will live. You will need to evaluate your longevity by taking into consideration your current health, diet, exercise, available medical care, and family history in reviewing break-keven points.
For many though, it doesn't matter the amount of benefits received over their lifetime. It is how much per month they receive that does. If you can wait to collect past full retirement age, your benefit increases 8 percent per year up to age 70.
Another consideration in waiting to collect is the effect that Social Security's annual cost of living adjustments will have. These are calculated using your initial year's benefit as the base. If you have waited to collect, your base is higher and your annual increases will be as well.
If you are married, you will need to consider the effect that benefit claiming strategies have on both of you. Consider how much lifetime benefit both of you will have and the amount a surviving spouse will receive.
Remember, if you start collecting benefits at age 62, you aren't eligible for Medicare until age 65. Make certain you plan for health care in the interim period.
As can be seen, these rules are complex and there is a lot to consider. For more information about your benefits, you can visit the SSA website at socialsecurity.gov. You can also call and visit your local Social Security Administration office.
Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at email@example.com. Your question and his response might appear in a future column.