5 Key Points to Consider Before You Claim Social Security
The big decision every retiree has to make is when to start taking their Social Security benefits. Here are five things to think about as you weigh your options.
When you hit your 60s, it’s time for you and Social Security to come to a reckoning.
After all, it’s likely you have been paying into Social Security for decades, and now you have a choice to make: Claim your benefit early, claim it right on schedule, or postpone claiming it.
Unfortunately, no perfect answer exists to make this easy. What’s best for your neighbor may be different from what’s best for your cousin, which in turn may be different for what’s best for you.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You can claim Social Security as early as age 62, but there’s a catch. The amount of your monthly checks will be reduced, and that reduction is for life. To qualify for your full benefit, you need to postpone claiming until your full retirement age, which for most people is between 66 and 67.
But there also is a benefit to waiting until you are 70, because you are rewarded with an even larger monthly check if you do.
As you ponder this momentous decision, here are five key points to keep in mind:
Earnings test
Would you like to continue to work even after you start drawing Social Security? You can, but be aware: There’s a limit to how much you can earn if you haven’t reached full retirement age. If you earn more than what’s allowed for the year, your benefit is reduced by $1 for every $2 you go over the maximum. This rule begins to ease up in the year when you reach full retirement age. During that year, the benefit is reduced by $1 for every $3 you earn over an increased maximum. Those earnings limits are adjusted for inflation each year, so make sure you are up to date. Once you finally reach full retirement age, you can work and earn all you want. There’s no limit.
Tax impact
Your Social Security benefit could be taxed if you continue to work or have other sources of income. Your entire benefit is never taxed, though; instead, taxes owed are based on a percentage of your total benefits. If you file federal taxes as an individual and your provisional income is between $25,000 and $34,000, you may have to pay income taxes on 50% of your Social Security benefit. If your income is more than $34,000, up to 85% of your benefit could be taxable. Married couples filing jointly may be taxed on 50% of their benefit if their income is between $32,000 and $44,000. They may be taxed on up to 85% of their benefit if their income is more than $44,000.
Longevity
People are living longer, and that could play a role in when you decide to claim your Social Security benefit. Consider how healthy you are and how long you think you might live. If you anticipate living into your 80s or 90s and you have other sources of income to hold you over, you might want to delay taking Social Security until you are 70 to get the maximum benefit. That larger monthly check could be especially important if, over time, your retirement savings start to run out.
Pensions
A pension could affect your Social Security benefit, depending on whether it’s a government pension or a private pension. This is because some federal employees and employees of state and local governments receive pensions based on earnings that they didn’t pay Social Security taxes on. Let’s say that, although you didn’t pay Social Security taxes with your government job, you are eligible for Social Security benefits because of another job where you did pay the tax. In that case, your benefit amount may be reduced, and the Windfall Elimination Provision will help determine how much your benefit actually is.
Here’s an added twist: If you are eligible for Social Security based on your spouse’s record, and you also have a pension not covered by Social Security, the Government Pension Offset determines whether your benefit on your spouse’s record will be affected.
Impact on spouse
Marital status is another factor that can affect when you take Social Security. For example, married people are eligible for benefits based on their spouse’s work history. This spousal benefit is 50% of the working spouse’s earned benefit, but for you to claim this the working spouse must be at least 62 and already have filed for benefits. If you are divorced, you may be eligible for spousal benefits based on your ex-spouse’s work history. Naturally, there are rules related to that: Your marriage must have lasted at least 10 years, you must be divorced for at least two years, and you must still be single. Also, you need to be at least 62 and not eligible for higher benefits based on your own work record. But unlike spousal benefits for married people, your ex-spouse does not need to have filed for benefits for you to claim them.
These are just a few factors to think about as you decide when to take Social Security benefits. The decision is a significant one, and getting it wrong could prove costly. Consider talking to a financial professional to help you navigate the often-confusing rules before making any decisions regarding when to start benefits.
You earned that Social Security benefit. You want to make sure you use it to your best advantage.
Ronnie Blair contributed to this article.
Disclaimer
Our firm is not affiliated with or endorsed by the U.S. government or any governmental agency. Investing involves risk, including the potential loss of principal. Comprehensive Advisor is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. 01019640 08/21
Disclaimer
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Brett Gottlieb is the founder of Comprehensive Advisor Financial & Insurance Services in Carlsbad, Calif. As a financial adviser, he helps pre-retirees and retirees with income planning, investment portfolio management, tax planning, health care planning and legacy planning. Gottlieb has bachelor’s degrees in business administration and economics from California State University-Chico. He has passed the Series 65 securities exam and is an independently licensed life insurance agent.
-
Stock Market Today: Stocks Waver on Resilient Employment Data
A private reading on payrolls had markets rethinking rate-cut bets just days ahead of the monthly jobs report.
By Dan Burrows Published
-
Lamb Weston Stock Gains After Earnings Beat, Layoff News
Lamb Weston stock is higher after the french fry maker reported earnings and unveiled a restructuring plan that includes job cuts. Here's what you need to know.
By Joey Solitro Published
-
This Trust Strategy Can Reduce Your Taxes Big-Time
Upstream basis planning can help younger wealthy people pay less taxes on highly appreciated assets if they appoint an aging relative as a trust beneficiary.
By Rustin Diehl, JD, LLM Published
-
Three Major Estate Plan Mistakes to Avoid
A complete and up-to-date estate plan can help ease your loved ones' worries and make things easier for them after you pass.
By Jay Dorso Published
-
Which Type of Power of Attorney Is Right for You?
Durable or limited? How about springing or military? There are many more kinds of POAs than just medical or financial.
By Kelsey M. Simasko, Esq. Published
-
How Employers Can Ensure They're Paying All Employees Fairly
'Equal pay for equal work' has been the law since 1963, but pay gaps because of gender, race and other characteristics persist. How does a company get it right?
By H. Dennis Beaver, Esq. Published
-
Do You Know How Much You've Saved in Your 401(k)?
And are you sure you're enrolled in one? A surprising number of workers don't know where they stand with their company's retirement plan. Time to find out.
By Cynthia Pruemm, Investment Adviser Representative Published
-
Riches vs Wealth: A Cautionary Tale From 'The Hobbit'
The story of dwarven king Thorin Oakenshield in J.R.R. Tolkien's classic novel perfectly illustrates how the relentless pursuit of wealth can undermine the fulfilling experience of true riches.
By Richard P. Himmer, PhD Published
-
Gen X: We Need to Talk About Your Retirement
Juggling kids, aging parents and work? No wonder you don't want to talk about your own retirement. But there are four key areas you should be discussing now.
By Nico Pesci Published
-
How Much Do You Need for a Comfortable Retirement?
What you need to be comfortable in retirement won't be the same as what your neighbor might need. Here's a scenario in which $1 million might be enough.
By Joe F. Schmitz Jr., CFP®, ChFC® Published