As you begin planning for retirement one essential step is to research your Social Security filing options. Too many folks focus solely on WHEN they will file for benefits instead of WHO they will file their claim under. Simple oversights like this can cost you thousands of dollars in lifetime benefits. Here I will share some important ideas to consider before filing your application to Social Security.
The absolute earliest you can receive retirement benefits is at the age of 62. You can delay and increase your benefits as late as age 70. Most people understand that the earlier they enroll the less they will receive on a monthly basis. A 25% reduction in benefits is applied when you enroll at age 62. This reduction amount decreases the closer you get to your full retirement age.
A common myth about the early retirement reduction is that it is a “penalty”. This is not true. The reduction simply recalculates your monthly benefits based on the fact you will receive more payments over your expected lifetime. So in essence, you are entitled to the same lifetime benefits but because the payments are extended you receive less per month.
Full retirement age (FRA) is the point at which you are eligible to receive 100% of monthly benefits. This age is based upon your birth date, but the majority of people retiring in 2014 will have a FRA of 66 years old.
Now if you can afford to delay your benefits until age 70 you will gain the advantage of retirement credits. These work similarly to interest payments on your lifetime benefits and can add 5 to 8 percent to your monthly checks. Once again the credit amount is determined by age. If you were born after 1944 and retire in 2014 then you would get the full 8 percent increase. Note that you should not delay receiving benefits beyond age 70 because no additional credits are earned after this point.
Perhaps the most important consideration for early retirees is whether or not they will continue to work. This is something you must plan for in advance since the rules can significantly impact your annual revenue. For 2014, the earnings cap for employed individuals under full retirement age is $15,480. During the year you reach FRA the cap is increased to $41,040. This may or may not be a workable cap for you depending your job and month of birth.
Working while retired does offer some exclusive advantages even if you go over your earnings cap. For starters, your benefits will be recalculated after FRA and you will be given a credit for the months you lost benefits for over-the-cap earnings. So if you have a good paying job then it is conceivable that you could secure a higher benefit payout down the road.
The age at which you apply for benefits and your working status during retirement are just some of the things to think about before filing your Social Security application. The best way to view your future Social Security benefits is in terms of your health and current earning power. Those who are in good health and financial standing will typically benefit from waiting until FRA or beyond to gain the maximum monthly benefits.