OK- You've worked all these years, looking forward to the magic of retirement- although you really don't know what it looks like. You put your time in, counted down the years, months, days (hours) and are ready to pull the trigger. You consulted with your Certified Financial Planner™ (I can only hope, after reading me all these years) and did a full cash flow analysis.
You're ready for the life of Riley... now what should you do about filing for Social Security? What if you work part time? What age should you start? Do I pay taxes? If I have to make all these decisions, why did I stop working? Everyone's situation is different.
Cash flow needs, income needs, taxation, different types of retirement income and other factors dictate that you look at your own situation without being swayed by others.
According to the Social Security Administration statistics December 2010, the typical 65 year old man (women live longer- I know there's a joke in there somewhere) will live to age 83, one in four 65 year-olds will live to age 90 and one in 10 65 year-olds will live to age 95.
This leads us to the first question- when should you take your benefits? Full benefits for persons born during the years 1943-1954 are paid at age 66.
You can take a reduced amount at age 62, of which your benefits will be reduced by 25%, at age 63 reduced by 20%, age 64 at 13 1/3% and at age 65 reduced by 6 2/3%.
If you choose to delay payment post full retirement age, your yearly increase rate will vary based on when you decide to start payments. If you are not in the above age bracket, you may find your full retirement age as well as all information pertaining to this subject at www.socialsecurity.gov.
Can you work and collect benefits? Sure! Will you pay taxes on the payments? Sure- depending on your total income! It doesn't mean you should limit your earnings if you are working. While working, if some of your benefits have been withheld because of wages earned, at full retirement age your benefit amount will be recalculated to the higher amount. So don't let working stand in the way of applying for your Social Security benefits- on average, the same amount will be paid out over your lifetime, depending on your year of death.
If you live a long and rewarding life, you actually may come out ahead. To do some calculating, you can use the SSA retirement estimator at www.socialsecurity.gov/estimator.
Taxation depends on your earnings if working and your total income while you are collecting. In this regard, I highly recommend that you consult your tax advisor before taking benefits to see how your tax payments may be affected.
Here's a little known fact- if you choose to take your benefits at age 62, or at any early age, you can reapply at your full retirement age for the full benefit if you pay back the prior payments.
Thus, you may have had use of the previous payments, and by giving it back, your monthly payment will get bumped. Pretty nifty, huh?
When you do decide, be sure to leave yourself a 3 month window to apply to assure benefits will be there once your retire. In any case, if approaching age 65, be sure to apply for Medicare three months before your 65th birthday to assure health benefits. If not, both drug coverage and health premiums may be higher.
When and where to retire is a very personal decision- don't let anyone force you or convince you otherwise. Only you know when you truly are ready- although you've been saying it since the day you started working. Take your time, do your due diligence, and consult your advisors… and then it's time to party, party, party!
If hearing from me once a month isn't enough, come visit me in our new blog site at www.chestnutblog.com. If you think I've got pearls of wisdom here... you ain't read nothin' yet! See you there!
Neal A. Deutsch is a Certified Financial Planner™ & Registered Securities Principal, offering securities through First Allied Securities, Inc., member FINRA/SIPC. Neal is President of Chestnut Investment Group in Suffern, NY, helping people with financial planning since 1984. Please feel free to call Neal at (845)369-0016 or email him with your questions at neald@chestnutinvestment.com.
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