The chart below shows the effect on average monthly benefits (as of 2007) for Social Security beneficiaries who applied early compared to those who waited until their FRA or later to apply:
As the chart reveals, the Average Reduced Benefit for both men and women is significantly lower than the Average Unreduced Benefit. Part of this difference is undoubtedly due to the fact that most people who delayed retirement worked longer and had higher average earnings than those who took early Social Security retirement, but even those who stopped work at 62 could have increased their monthly benefit by waiting until their FRA or later to apply.
The chart also reflects the gender gap in average monthly benefits in that more women (almost 76%) applied for reduced benefits than men (about 71%). Since women have a higher average life expectancy than men, this gender gap means that women have to live with this lower average monthly income several years longer than men who take reduced benefits.
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I am going to be 62 at the end of this year and I am definitely going to sign up for Social Security. Two reasons: 1) My income will definitely NOT increase over the next few years, so my SS level won't increase. 2) If for some reason my income does increase, I can pay back the SS I have received and get the higher amount. I might decide at 66 that it would be better for me to take savings and pay back the SS I have received and get the higher benefit. Is there something I'm missing?
ReplyDeleteYou are correct that you can apply for early benefits if you do not plan to work after age 62. And you can also withdraw your retirement claim anytime after you apply to qualify for a higher benefit later on as long as you can repay in one lump-sum all of the benefits you received, including any deductions made for Medicare premiums.
ReplyDeleteBefore you make your final decision, I suggest you check into whether you will owe income tax at your marginal tax rate on up to 85% of your Social Security benefits(see IRS Pub. 915). If you expect your total income or your marginal tax rate to be lower in later years, you may be better off waiting to apply.
Taking a reduced benefit at 62 can also result in a lower survivor's rate for your spouse if you die before you are able to withdraw your claim and repay the benefits.
On the other hand, waiting to apply at 66 will qualify you for a benefit that is about 33% higher and waiting until age 70 will result in a monthly payment that is about 75% higher than your age 62 rate.
And finally, if you are married or qualify for benefits as a divorced spouse, there may be other options available that will further maximize your benefits. To take advantage of these options you would have to wait until age 66 to start your benefits.
Whatever you decide, it is a good idea to research your options. Good luck and have a happy retirement!