So, you’re getting into the last stretch of your career and you’re thinking about Social Security and when to file.
I know what you’re thinking: What is the best strategy? When is the best time to file? When can I file? I have no idea what to do!
I agree it is overwhelming, especially considering it is one of the most important financial decisions of your life — if not the most important one. For many retirees, Social Security represents their largest financial asset — not to put too much pressure on you. ☺
Full Retirement Age Defined
According to SSA.gov, full retirement age (FRA) — sometimes referred to as normal retirement age — is defined as “the age at which a person may first become entitled to full or unreduced retirement benefits.” Unreduced retirement benefits is also known as the primary insurance amount.
For example, if you were born before 1937, you can start collecting your full benefits (also called the primary insurance amount) at age 65. If you were born after 1960 you will have to wait until age 67 to start collecting your full benefits. Please refer to the chart to see when you can start collecting your full benefit amount. Alternatively, you can visit SSA.gov . . . they have a great calculator that you can enter your information into and it will tell you your full retirement age.
Taking Social Security Benefits Early and the Earnings Test
I know what you are thinking: But I have friends and colleagues who started collecting at age 62. How?
- Age 62 is approximately 30%.
- Age 63 is approximately 25%.
- Age 64 is approximately 20%.
- Age 65 is approximately 13.3%.
- Age 66 is approximately 6.7%.
If your FRA is before age 67 please refer to a more in-depth post about when to file for benefits.
For example, let’s take a hypothetical person that was born either in 1960 or later, which means their FRA to receive full benefits is 67. If they were scheduled to receive 1,000 per month at age 67, and they started collecting early at age 62, their benefit would be reduced to around $700 per month.
You will also need to be careful of the earnings test. The earnings test only applies to filers who have not reached full retirement age. In plain English, if you are still working and file to receive benefits before your FRA, most likely your Social Security benefits will be reduced. The Social Security Administration will deduct $1 from every $2 you earn above the annual limit. The limit for 2016 is $15,270.
For a more detailed explanation and strategies about taking your benefits earlier, click here to read my article about being fully dedicated to filing early.
Delayed Retirement Credits
To confuse things even more, if you delay your Social Security benefits until after FRA, you could also be eligible for delayed retirement credits. If benefits are delayed until after FRA, the increase is about .67% per month that benefits are delayed until age 70; or simply put, approximately 8% per year.
That is awesome Joe, I will just delay until age 70!
Well slow down, this may be in your best interest or it might not be. Don’t you love statements like this? I know I hate them. I always like clear and concise answers, but it is not always that simple.
Most websites and so-called financial “experts” recommend always delaying. We tackle this and much more in (you guessed it) my article about delaying benefits to age 70.
Everything I just wrote about pertains to the individual’s Social Security records. It does not, however, apply to spousal benefits or widower benefits.
Spousal Benefits and Widower Benefits
You guessed it: there are more rules and regulations when it comes to spouses and widowers. I am not going to go into great detail in this article. I will discuss how spousal benefits pertain to FRA.
Spousal benefits are benefits the spouse receives based on the husband’s or wife’s earning record when he or she is alive. They are entitled to the larger of the benefits based on their earning record, or if eligible, spousal benefits, which is up to 50% of the spouse’s primary insurance amount (full benefits). For more on this please refer to my other article How to Navigate the Maze of Social Security Survivors Benefits
You may be wondering if you can take spousal benefits early. The answer is yes, but there is a different reduction schedule and instead of being reduced to about 30% it is reduced to about 32.5%. Here is the breakdown according to SSA.gov:
- Age 62 is approximately 67.5%.
- Age 63 is approximately 65%.
- Age 64 is approximately 62.5%.
- Age 65 is approximately 58.3%.
- Age 66 is approximately 54.2%.
- Age 67 is 50% (the maximum benefit amount).
How to Create an Online Social Security Account
As you can see, the first place to start is to figure out the age at which you can start collecting full benefits. Contact your Social Security Administration office, or I highly recommend setting up an account on the Social Security Administration website. Because I am all about giving, I created this awesome step-by-step video on how to set it up in your account:
The Social Security Solution Program
Additionally, if you want a comprehensive review, please take a look at our Social Security Solution Program. I put this program together from the feedback I have received from clients and readers of Social Security Teacher. This solution is designed specifically for those of you who want help and guidance in making the best decision for you and your family. I am a CERTIFIED FINANCIAL PLANNER™ professional, and have the experience to help you get there.
If you’re still feeling overwhelmed and stressed by Social Security, sit back relax and listen to one of your favorite music albums, I promise you it will put you in a good mood. Personally, anything with Otis Redding gets me smiling. ☺
Shoot me an email with one of your favorite artists or albums. I would love to hear it. Oh, and of course any questions about Social Security.