Are you listening to the media and plan to work indefinitely building your retirement nest egg? Are you waiting until age 70 to apply for Social Security benefits so you can get the highest monthly payout? Waiting until 70 is not necessarily the best idea. In this article, I’ll explain how applying later could cost you.
Rebel Retiree and I started collecting benefits at 62.
When I told a group of girlfriends at a monthly meeting that we planned to apply early for Social Security, they looked aghast – as if my husband and I were the biggest idiots on the planet. They warned me that it was a bad idea because we wouldn’t receive the largest monthly payout by collecting early. They advised that the longer we waited, the more money we would collect.
True, our monthly checks are smaller than if we waited until full retirement age (ours is 66), by about 25%. (This page on the Social Security Administration website explains the reduction in benefits if you apply earlier.)
However, my friends’ mindset was purely from a month to month perspective. They were only concerned with the monthly benefit amount. Rebel Retiree and I were looking at the bigger picture.
Waiting another 4 years until full retirement would mean a loss of tens of thousands of dollars. Our plan was to put the money to good use now by investing in our future!
Do the math, collecting later will cost you.
In 2019, the average Social Security check at full retirement (age 66, but that may be different for you depending on your year of birth) is approximately $1,500 per month.
If you decide to take that money at 62 you would receive approximately 70% of that amount, which is $1,050.
Over a period of 12 months, that comes to $12,600. Multiply that times 4 years and you get $50,400 in Social Security benefits before age 66.
If you wait and apply later, that is cash you give up at a time in your life when you may be able to put it to its best use. Examples of why a person would claim benefits at 62 include investment opportunities, unemployment, disability, illness, etc.
To be fair, let’s look at it from the other perspective.
A 30% reduction in your check amount is what Social Security estimates you will receive if you file at 62.
Using that $1,500 average figure again – 30% of that comes to $450 per month.
Again, multiply that by 12 and you get $5,400.
Admittedly, that’s a decent amount of money you forfeit by collecting at 62.
However, you would have missed out on 48 payments, plus you would have had to contribute to Social Security for 4 years! It would take you at least until you were 76, or perhaps into your 80s before you would break even.
You could be missing out big time if your spouse plans to collect spousal benefits.
With the exception of our self-employment, I’ve been a homemaker raising children.
During those years, at the advice of my accountant, I took a salary and paid social security taxes on my earnings.
Unfortunately, I didn’t have enough credits in my account when it came time to collect. In spite of that, I was able to file for spousal benefits based on my husband’s earnings.
For more information on how I did that, read my article, “I’m a Homemaker, Can I Collect Social Security Benefits if I’ve Never Worked”.
I receive a monthly check amounting to half (50%) of what Rebel Retiree receives in benefits.
Again, let’s do the math with the average benefit amount of $1,500 reduced by 30% due to filing at 62.
At 62, a person would receive $1,050 plus $525, which is half of the highest wage earner amount. That’s a total of $1,575 per month.
Over 4 years, that comes to $75,600 that you would have given up if you decided to apply for Social Security Benefits later instead of sooner.
While not every spouse’s age is within a year or two of the other, it’s prudent to take a look at your particular situation and determine where you will receive the most benefit.
Keep earning when you collect at 62.
You can collect a monthly Social Security check and continue earning wages.
According to the Social Security Administration, if you work for someone else, only your wages count towards Social Security’s earnings limits. If you’re self-employed, they only count your net earnings from self-employment.
They don’t count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains.
There are rules, however, and Social Security says it works like this:
“Let’s say that you file for Social Security benefits at age 62 in January 2019 and your payment will be $600 per month($7,200 for the year). During 2019, you plan to work and earn $22,600 ($4,960 above the $17,640 limit). We would withhold $2,480 of your Social Security benefits ($1 for every $2 you earn over the limit). To do this, we would withhold all benefit payments from January 2019 through May 2019. Beginning in June 2019, you would receive your $600 benefit and this amount would be paid to you each month for the remainder of the year. In 2020, we would pay you the additional $520 we withheld in May 2019.”
According to Social Security’s formula, if you make over the earnings limit, they will withhold $1 for every $2 that you go over the limit.
The good news is that when you turn 66, you can reclaim that money. Social Security will recalculate your monthly amount, and give you credit for payment that was withheld when you went over your earnings limit.
It won’t be a lump sum, but your monthly check will be higher. In addition, at full retirement, you can make as much money as you want without worrying about an earnings limit.
You can make as much as you want and also collect your monthly Social Security benefit.
Take the money and invest in yourself.
In another article, I said that baby boomers are not content to sit on their duffs and watch the world go by.
I was speaking in general from personal experience of what I know about my generation, but I’ve learned that the statement is spot on.
Baby boomers are not settling for a typical sedentary retirement. A good number are becoming entrepreneurs.
And the numbers are increasing. The average age of a business owner in the United States is over 50.
According to a national report by Kaufman, individuals aged 55 to 64 made up 25.5 % of all new start-ups in 2016.
Consider taking early Social Security, and working part-time. Use your spare time to start a business, or find a means of passive income.
Invest in yourself while collecting Social Security benefits. These are strategies that translate into retirement security that lasts well into your older years.
How long do you plan to live?
Dumb question, right? We all plan to live as long a possible, and the good news is that the longer we live, the longer our life expectancy.
I’m a boomer, I’m someone that thinks age is a state of mind, and I plan to live to a ripe old age.
Having said that, it’s important to address the fact that many people think that the years between 60 and 70 may be the best decade they have left.
They feel physically fit, energetic, and vibrant.
It’s the time to finally live their dream, achieve the goals that have been put off – whether it be travel, spending time with grandchildren, taking up new hobbies, learning new skills, etc.
I realize that some people need to work until they can collect Medicare, but continuing to work full time for a higher monthly Social Security check just doesn’t make sense unless you love your job or you are immortal.
What do you value most?
The opportunity to experience freedom and live life on your own terms, or a higher check from Social Security?
Perhaps I’m too idealistic but live in the now. Don’t put off the activities that you’ve been dreaming of accomplishing in retirement.
Don’t waste what may be your best years because you think the Social Security Administration rewards you with a higher monthly check for waiting longer.
Although I sincerely wish you a long and healthy life, applying for benefits later may be too late. You could wind up with nothing.
It’s your choice.
Each individual’s circumstance is different, and you are the only one who can best determine when to retire and take Social Security. The purpose of writing this article is to encourage you to decide what you value most. Is it working later to get a larger monthly check? Or could you file early for Social Security benefits and put that money to good use now?
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What’s your opinion on this? Wait or collect Social Security benefits now?