Social security early filing is one of several topics that have misconceptions in terms of retirement income. For all the pros, there are ultimately cons.
“An estimated 38% of seniors who have taken benefits say they wish they would’ve filed later,” writes personal finance writer Maurie Backman. “You’ll lose 6.67% of your benefits per year for the first three years you file early, and then 5% a year for each year thereafter.”
Four Facts You Need To Know Before Filing for Social Security:
Understanding the Social Security filing rules and requirements – which often change from year to year – can make a big difference in the monthly benefit you receive when you retire.
Without this knowledge, you risk making a decision that may lower the amount you receive for the rest of your life. Here are four important facts you need to know to make fully-informed decisions before you file for Social Security.
Full Retirement Age (FRA) Is Gradually Increasing
Since 1983, the Full Retirement Age (FRA) for collecting 100% of your Social Security benefit has been gradually increasing. For baby boomers and those born later, your FRA falls between age 66 and 67.
Currently, the earliest you can start receiving Social Security retirement benefits remains at age 62, but filing early considerably reduces your benefit. For example, if your FRA is age 66 and you file for Social Security at age 62, you will only receive 75% of your full benefit for the rest of your life.
For every year you delay filing for Social Security, the benefit you’re eligible to receive increases by approximately 8%. According to the Social Security Administration website, when you wait until age 70 to claim your benefit, you’ll get approximately 132% of the monthly benefit.
You Can Work While Receiving Social Security Retirement Benefits
There are some advantages if you continue to work while receiving Social Security benefits. The amount of your monthly benefit is determined by your highest 35 years of earnings.
Every year, the Social Security Administration will review your work record. If your earnings for the prior year are higher than one of the years they originally used to compute the amount, they will increase your benefit.
However, if you file for Social Security benefits before your FRA and continue to work, you’ll be subject to an Earnings Limit. If you’re age 65 and younger while earning more than $17,040 in 2018, $1.00 in benefits will be withheld for every $2.00 in earned income over the limit.
For those turning age 66 in 2018, the Earnings Limit is $45,360 per year. If you earn more than $45,360, $1.00 in benefits will be withheld for every $3.00 in earned income over the limit.
Beginning the month you reach your FRA, there is no limit on what you can earn. Your benefit will be recalculated to give you credit for any prior benefits withheld when you exceeded the Earnings Limit.
Spousal & Survivor Benefits: Marriage Provides An Advantage
You’re eligible to receive 50% of your spouse’s Social Security benefit even if you never worked under Social Security. If you’re eligible for your own benefit, based on your own earnings, plus a Spousal Benefit, you’ll receive whichever amount is higher.
However, you can’t collect a Spousal Benefit until your spouse has filed. If you file early for your own benefit then later switch to a Spousal Benefit, there can be a reduction in the amount you receive.
If your spouse has passed away, you can start receiving a Survivor Benefit as early as age 60 (as long as you haven’t remarried) but your benefit will be reduced because you filed before your FRA. If you’ve reached your FRA when you spouse dies, your Survivor Benefit will be 100% of your spouse’s benefit but, if he or she filed early for Social Security, your benefit will be based on the reduced amount. If you’ve both reached your FRA when your spouse passes away, you’ll receive 100% of which ever amount is higher.
After a divorce, you may be eligible for Social Security benefits based on your ex-spouse’s record as long as you haven’t remarried (exceptions may be made if the later marriage ends by death, divorce, or annulment). Although you can apply for these benefits as early as age 62, the amount you receive will be reduced.
You May Have To Pay Income Taxes On Your Social Security Benefits
Due to tax amendments passed in 1983 and again in 1993, your Social Security benefits can be subject to income taxes. If you have other sources of retirement income, such as a 401(k), a part-time job, or a pension you receive from a former employer, 50% of your Social Security benefits can be taxed as much as 85%.
Depending on where you live, you may also have to pay state income taxes on a portion of your Social Security benefits.
Deciding When To File For Social Security Is A Big Decision
Social Security can be complicated and what’s covered above is just the beginning. Before you file for your retirement benefits, you need to analyze your income, your lifestyle and your taxes to make the best decision for your situation.
That’s why it’s important to meet with a knowledgeable financial professional to ensure you receive the maximum Social Security benefit you’ve worked so hard to earn.
