About two years ago there was a major change to Social Security when the full retirement age changed from 66 to 67. The increase will be a gradual shift with a month added for every two months in age shifting to the new full retirement age we now have, age 67. But that does not mean that you cannot still start collecting your Social Security benefits at age 62 because you still can. As we will examine, it will be at a reduced rate depending on how for from age 67 you are when you begin collecting your benefits.
Your Generation
If you are a Generation X or Millennial chances are your parents were able to retire at age 65 or 66 while we will have to wait another year or two to age 67. That is not surprising as people are living longer now as compared to our parents or grandparents and longer than when Social Security was introduced in 1935. And as our country continues to age and live longer Congress will at some point have to address the fact that the fund will run out of money unless changes are made to either the full retirement age or the Social Security tax we pay into the system.
But what does taking your Social Security benefit at an age before you turning 67 mean? For the answer to this, I would recommend seeking the advice of a fee-only fiduciary financial planner over speaking with a Social Security representative as their information may not be ideal for your unique situation. For ease of talking, we are now making the assumption that your full retirement age is age 67. If you were to elect to take your benefits at age 62, you would receive about 70% of your entitled benefits. Yes, this does mean that your monthly benefit check will be less for the remainder of your life. But if you elect to wait until age 70, you will get a benefit check that is 124% that of your full retirement benefit, or an additional 8% a year.
Your Benefits
So, what does it mean to your benefits if you elect to stay working past age 67 or work part-time? Anytime you elect to take your benefits before your full retirement age your benefits will be reduced if you earn over a specified amount. In 2019 the amount you are not allowed to exceed is $17,640. What that means is for every $2 over this amount your benefit will be reduced by $1 until you reach your full retirement age of 67. If you elect to not take your benefits until age 67, there are no restrictions on the amount you may earn.
But if I work longer and make more money doesn’t that increase my monthly benefits? Well, the answer to that is yes and no. Your benefits are calculated on your 35 highest annual wages that are adjusted for inflation. This means that if you worked fairly consistently for 30 plus years a few extra will not make that much of a difference. Studies have shown that if someone has a consistent work history and elected to work from age 62 to age 70, their monthly benefit will only grow about 7% meaning the extra working wages does not affect the benefit that much. But if you did not work a full 35 years or had several years of part-time employment working the extra years could add up to 18% more to your monthly benefit. To see an estimate of your benefits go to the Social Security’s website at www.ssa.gov to use their free calculator. And the more you earn, the less you will end up paying in Social Security taxes as in 2019 the maximum amount taxed is $132,900 for a person. This means that if you earn more than that amount the amount over $132,900 will not be taxed for Social Security purposes and all under that amount will indeed be taxed.
Social Security is a complex matter and can be extremely difficult to understand without a financial planner assisting you in making wise decisions. When it comes to electing to take your benefits, there are numerous things that must be considered in order for you to make a wise decision that will not have negative consequences for you or your family.
For more information feel free to leave a comment here or contact me directly via email at kirk@kgmeyerpc.com. For a free PDF on financial planning and my email newsletter fill out the form below.
