People sometimes hear incomplete information about government programs for senior citizens. As a result, they make certain assumptions, and they can harbor these misconceptions for extended periods of time. The ultimate outcome can be less than ideal, because plans may have been made based on sketchy information.
This enters the picture when it comes to Social Security eligibility. You may have heard that you can start to draw a Social Security direct deposit when you are 62 years of age. Most people do not retire at this age, but you can get the idea that you will have an additional income stream from your Social Security payout while you are still working.
There is a shred of truth to this line of thinking, but there is much more to the equation. It is true that you can indeed start to draw a Social Security payout when you are as young as 62, assuming you have earned at least 40 retirement credits during your working career.
Doing this doesn’t take much, because you can earn up to four credits per year, and the requirements are modest. In 2015, you get one credit for every $1,220 that you earn.
If you decide to submit your application for Social Security when you are 62 years of age, and you are still working, you can be significantly penalized. There is a certain amount that you can make before the penalty would be imposed. This figure changes year-by-year as inflation adjustments are applied.
In 2015, the figure is $15,720. If you earn more than this amount and you are collecting an early Social Security benefit, your benefit is reduced by one dollar for every two dollars that you earn in excess of the threshold.
The unsavory scenario above is not the only drawback that goes along with an early benefit. You would receive a reduced benefit for the entire time that you receive Social Security if you obtain eligibility when you are 62 years of age.
The amount of the reduction would depend upon the year of your birth. However, to give you a general idea, if you are not yet receiving Social Security benefits, the reduction would be somewhere between 25 percent and 30 percent.
Full Eligibility Age
When you do the math, you may come to the realization that you would be better off waiting until you reach the age of full eligibility. This is all a gamble depending on your life span, but it is statistically likely that you will live into your eighties if you are fortunate enough to reach the age of 65.
The age of full eligibility depends on your birth year, but it will be somewhere between 66 and 67.
Financial Planning Consultation
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Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.