Friday, September 21, 2012
Posted in
Life
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I recently turned 62 and started collecting Social Security benefits. I had always believed that I had to wait until age 65 to get the full amount of benefits owed to me, but that isn't true.
Before I continue, let me say that the retirement age has been moved from 65 to 66, and will soon go up to 67. They made that change to make Social Security more solvent, but also because the population is living longer now. It was a reasonable thing to do, although I read one article that argued that it penalizes poor people and some ethnic groups who tend to die at a younger age.
Let's say that, at the age of 66, you would qualify for a monthly check of $1500. If you choose to retire at age 62, you will get 75% of that, or $1125. However, you will get it for an additional 4 years (from ages 62 to 66), so you may end up getting the same money -- or more -- than if you started collecting at age 66 (depending on when you die). Here is how it works:
Using statistics, the Social Security Administration (SSA) determines what your life expectancy is. At the present time, the life expectancy of a 62-year-old man is 83 years (I think it is 86 for women). What the SSA does is they determine how much money you would get from ages 66 to 83, and then they stretch that money over four more years, from ages 62 to 83, which makes your monthly check smaller. If you die earlier than 83, you come out ahead (meaning that you collect more money than you would have if you had started collecting at age 66). If you die at age 83, you get the same amount of money either way. It is only if you die after age 83 that you lose money.
So the question becomes, How long will you live? If most of your recent ancestors died before 83, then you should start collecting early because you will get more money if you also die before 83. If, on the other hand, your relatives tend to be long-lived, dying in their late 80's or early 90's, then you should start collecting at age 66 to get the most money out of the system.
Of course, if you are poor at the age of 62 and need money, you might as well start early. Even if you live until 90, you won't lose that much money by collecting early. Consequently, collecting early is the best strategy for people who are not doing well financially.
In my case, my father lived to 83 and my mother lived to 90. However, I have diabetes (which they didn't), and I am also overweight. That shortens my life expectancy, and I frankly doubt that I will live past 80. Thus, I will get the most money by collecting at age 62.
What if you are still working?
If you are still working at age 62, you don't lose anything by collecting early. You can earn up to $14,640 per year without losing any of your benefits. If you make more than that, you will lose some benefits, but not much. However, the benefits you "lose" are actually deferred until age 66, at which time you will start receiving a larger check. So there really isn't any penalty for working. Starting at full retirement age (66 or 67), you can work all you want and still collect your full SS check.
What if you owe taxes to the IRS or haven't filed?
If you haven't filed all your recent income taxes, or you owe money to the IRS, it doesn't matter to the SSA. What matters is whether you have enough "credits" from previous years to qualify for benefits. However, once you start collecting benefits, you will have to start filing tax returns, because that's how the SSA knows whether you are also working, and whether you are making enough money to incur a penalty (i.e., to have benefits deferred to later years).
Conclusion
The money you collect from SS is, of course, your own money that you paid into the system over your lifetime. If you are like most people, you wouldn't have saved for your retirement unless you were forced to. I mean, how many people in their 20's and 30's are thinking about retirement? When I was that age, I resented losing my income to the SS fund, but now I am extremely grateful.
I think that Social Security is a wonderful program. I continue to work, and the extra money I am getting every month is a godsend. It pays for my rent and my utilities, and it almost pays my medical expenses. Then, everything else I earn is just for me. Social Security has raised me out of poverty and put me squarely in the middle class. One wonders why the Republicans are so dead set against it.
Before I continue, let me say that the retirement age has been moved from 65 to 66, and will soon go up to 67. They made that change to make Social Security more solvent, but also because the population is living longer now. It was a reasonable thing to do, although I read one article that argued that it penalizes poor people and some ethnic groups who tend to die at a younger age.
Let's say that, at the age of 66, you would qualify for a monthly check of $1500. If you choose to retire at age 62, you will get 75% of that, or $1125. However, you will get it for an additional 4 years (from ages 62 to 66), so you may end up getting the same money -- or more -- than if you started collecting at age 66 (depending on when you die). Here is how it works:
Using statistics, the Social Security Administration (SSA) determines what your life expectancy is. At the present time, the life expectancy of a 62-year-old man is 83 years (I think it is 86 for women). What the SSA does is they determine how much money you would get from ages 66 to 83, and then they stretch that money over four more years, from ages 62 to 83, which makes your monthly check smaller. If you die earlier than 83, you come out ahead (meaning that you collect more money than you would have if you had started collecting at age 66). If you die at age 83, you get the same amount of money either way. It is only if you die after age 83 that you lose money.
So the question becomes, How long will you live? If most of your recent ancestors died before 83, then you should start collecting early because you will get more money if you also die before 83. If, on the other hand, your relatives tend to be long-lived, dying in their late 80's or early 90's, then you should start collecting at age 66 to get the most money out of the system.
Of course, if you are poor at the age of 62 and need money, you might as well start early. Even if you live until 90, you won't lose that much money by collecting early. Consequently, collecting early is the best strategy for people who are not doing well financially.
In my case, my father lived to 83 and my mother lived to 90. However, I have diabetes (which they didn't), and I am also overweight. That shortens my life expectancy, and I frankly doubt that I will live past 80. Thus, I will get the most money by collecting at age 62.
What if you are still working?
If you are still working at age 62, you don't lose anything by collecting early. You can earn up to $14,640 per year without losing any of your benefits. If you make more than that, you will lose some benefits, but not much. However, the benefits you "lose" are actually deferred until age 66, at which time you will start receiving a larger check. So there really isn't any penalty for working. Starting at full retirement age (66 or 67), you can work all you want and still collect your full SS check.
What if you owe taxes to the IRS or haven't filed?
If you haven't filed all your recent income taxes, or you owe money to the IRS, it doesn't matter to the SSA. What matters is whether you have enough "credits" from previous years to qualify for benefits. However, once you start collecting benefits, you will have to start filing tax returns, because that's how the SSA knows whether you are also working, and whether you are making enough money to incur a penalty (i.e., to have benefits deferred to later years).
Conclusion
The money you collect from SS is, of course, your own money that you paid into the system over your lifetime. If you are like most people, you wouldn't have saved for your retirement unless you were forced to. I mean, how many people in their 20's and 30's are thinking about retirement? When I was that age, I resented losing my income to the SS fund, but now I am extremely grateful.
I think that Social Security is a wonderful program. I continue to work, and the extra money I am getting every month is a godsend. It pays for my rent and my utilities, and it almost pays my medical expenses. Then, everything else I earn is just for me. Social Security has raised me out of poverty and put me squarely in the middle class. One wonders why the Republicans are so dead set against it.
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