Social Security, the when, the how and the what can get really deep in weeds. Entire books have been written about it, there are spreadsheet calculators designed to maximize your benefit and countless webinars and workshops to educate you.
Let’s just get to basics here, if you need or want more, happy to answer your individual questions.
- First, a definition, FRA. Full Retirement Age. This is 67+ years of age.
- Broadly, Social Security calculates your monthly retirement benefit from your 35 highest earning years.
- You can start taking Social Security as young as 62, or as late as 70.
- Your benefit amount increases roughly 8% a year that you delay taking benefits.
- Social Security is actuarially accurate, meaning that if you live to your life expectancy you will get roughly the same amount of money, matters not when you start taking benefits. All else equal, if you think you will live well beyond your life expectancy, around 76 for males and 80 for females, delay as long as you can. If you think you might not make it to your mid-seventy’s, start as early as you can.
- If you start benefits before FRA and still have earned income, you will be penalized on your Social Security benefit. If you earn more than $1,630 a month from employment in 2022, for every $2 above that you will lose $1 in SS benefits. For the period between January 1 and the month you attain FRA, you can earn up to $4,330 a month without penalty. Once you reach FRA, there is no penalty from earned income.
- If you take Social Security prior to FRA and things change, you have up to a year to stop your benefits, for any reason. You will need to pay back the benefits you received, and you enjoy a do-over.
- Once you reach FRA, you can suspend your benefits for a period of time, allowing your future benefit to grow.
- If married for at lease 10 years, you can claim your benefit or ½ of your spouse’s benefit, whichever is greater.
- A survivor benefit would enable a spouse to jump to the deceased spouse’s full benefit, if more.
- Social Security benefits are taxable to some extent with income over $25,000 for single filers and $32,000 for married joint filers. The taxation applies to between 50% to 85% of your benefit.
- If there is a significant age or income difference between spouses, then a more nuanced approach to claiming benefits may be warranted.
To sum up, I like to use the Clint Eastwood line, “Do you feel lucky?” All of this would be quite easy if we knew our own mortality. As a fair starting point, take Social Security when you need to, but before doing so check with a fee-only Certified Financial Planner™ first.