The vast majority of American workers are eligible for social security. For most people, 10 years of work means that you and your spouse will be able to count on payments from social security as part of your retirement income. But when should you start collecting benefits?
The Social Security Administration determines your “full retirement age” based on the year you were born. For example, if you were born between 1946 and 1954, then your full retirement age is 66. Everyone is eligible to start receiving benefits when they reach age 62, regardless of their full retirement age. Tempting as this may be, it’s not always the best decision. Here’s why:
If you start taking benefits before full retirement age, the amount you’ll receive each year will be permanently reduced, and the earlier you start, the less you’ll get. On the other hand, if you wait until after your full retirement age, the amount you’ll receive will increase until you reach age 70, at which point your benefits are capped.
Another reduction you might face has to do with whether or not you choose to work while you get social security. If you’re between age 62 and your full retirement age, and you earn more than the annual limit set by social security, then your benefits are reduced.
For 2010, the annual earnings limit for people before the year they reach retirement age is $14,160. Your benefits are reduced by $1 for every $2 you make over the limit. In the year you reach retirement age, you can earn up to $37,680 without a reduction in benefits. After you hit the limit, your benefits are reduced by $1 for every $3 you earn. Starting in the year after you reach full retirement age, you can earn as much as you want and still get full social security benefits.
Knowing these social security rules can help you make a more informed choice when it comes to deciding when to take your benefits.
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.