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When to Start Social Security

WHEN TO START SOCIAL SECURITY

When to start social security for women is based on different factors than men. It’s also a very individual decision based on your circumstances. Your starting age actually depends on a number of different financial and personal factors.  Women need a smarter plan to stretch their incomes and benefits through a longer and more expensive retirement. ( http://blog.creativeretirementforwomen.com/11-ways-female-retirment-different/.)

We are all aware of the three major starting points to begin Social Security, 62, 66 or 70 years old. We are aware that taking benefits at 62 reduces it about 25% compared to 66. Taking benefits at 70 increases our amount by about 25% compared to 66 years old. Here is an example.

62 years = $1125 / month             $13,500 / year
66 years = $1500                            $18,000
70 years = $1875                            $22,500

When examining these numbers, it’s clear that the best situation is to collect the most on a permanent basis. But, you would receive it for less years.

Reasons to start at 62: The primary reason is that you need the money to live on.

1. You’re unemployed and it’s difficult getting hired.
2. You’re working part-time or your income is below $20,000
3. Your health is poor and you are unable to generate much income.
4. You don’t have longevity in you family history.
5. You are trying to minimize your long term taxation.
6. You’re starting an early spousal benefit before switching at 70

The first three examples are based on your current financial need. If your family longevity is short, taking benefits early makes sense. Since Social Security is subject to taxation, taking a lower benefit results in less taxation when combined with your other income. This makes sense if your other incomes are over $20,000. Your combined income for taxation when receiving Social Security is= 1) your AGI or adjusted gross income + 2)non-taxable interest(now taxable) + 3) half of your benefits. Let’s take a look at this example:

Adjusted Gross Income            $12,000
Tax-exempt interest                  $ 8,000
Half of Soc. Sec. benefits         $ 6,750

This total is $26,750 while your taxes begin at $25,000 if single. So, if you are making $20,000 a year or more, getting more social security will mean more taxation. The days of receiving tax free municipal bond dividends are over.

As a spouse, you are entitled to social security at 62 years old even if you never worked. You just have to be married for 10 years at some point and you can be divorced now. You can collect half of his benefits without any loss to him. You simply have your partner apply for social security and suspend his payments until 70. This allows you to receive you spousal benefits at 62 and start your own benefits at 70 when it’s higher.

Reasons to start at 70:
1. You are able to work full time with a decent income until 70
2. You need to lock in the highest benefit to maintain your lifestyle
3. You don’t have a big savings or multiple income streams
4. You are healthy and have longevity in your family
5. You want to collect the 8% a year by waiting
6. You will receive a greater cost of living increase

Due to the greater longevity and other expenses of women, most should wait until 70 years old to collect benefits. The key reason for most of us to wait is that we haven’t saved enough. Working longer not only increases your income, but also pays more into social security that increases your benefits. Your benefits increase about 8%(past full retirement age) a year by waiting. Many people consider that a good return on your money. The cost of living increase is a percentage, so the larger your benefit, the larger the increase in dollar terms.

In conclusion, I believe most people would receive the greatest benefits by waiting until 70 years old to collect. To get maximum benefit, take half of the spousal benefit at 62 and your full benefit at 70. If you fit into one of the reason to start early, then don’t be bashful about taking advantage. But, try to wait as long as possible. L.J.

More at: www.creativeretirementforwomen.com