Know When to Start Collecting Social Security

Millions of baby boomers are facing the decision of when to startcollecting Social Security.And although two-thirds of the people eligible are opting tostart taking their Social Security benefits at age 62, rather thanwaiting to reach their full retirement ages at 65 or 66, the decisionis not simple. Financial planners and retirement experts say there area number of factors to consider before pulling that trigger.The decision comes down to two questions: Are you prepared financiallyfor retirement? Are you ready for the lifestyle change?"There's not a magic answer," said Burk Rosenthal of RosenthalRetirement Planning in Fort Worth, Texas, who said he's getting plentyof calls on when to take benefits.First, those who start taking Social Security at 62 will get smallerchecks for the rest of their lives by beginning the process beforeretiring.The percentage of benefits lost varies by age. People born from 1943 to1954 have a full retirement age of 66. By taking Social Security at 62,they lose 25 percent of the monthly payment. Starting for people bornin 1955, that loss increases on a graduated scale up to a 30 percentreduction for those born in 1960 or later.Rosenthal said it would still take 12 years of full benefits startingat age 65 or 66 to catch up to someone taking early withdrawals ofSocial Security even at the reduced amount, so you should consider howlong you think you may live.
To estimate your life span, look at how long your parents andgrandparents lived and your lifestyle habits. A good online calculatoris at livingto100.com.Another issue to consider is whether you want to work some during yourretirement years. Although those at full retirement age can earn asmuch as they want in a job and still receive full Social Securitybenefits, there are restrictions during the early withdrawal time.People who withdraw before their full retirement age can earn only$12,960 this year before Social Security begins deducting from theirmonthly checks. The Social Security Administration takes $1 from yourbenefit payment for every $2 over the limit that you earn during thistime period. But that earnings limit applies only to wages (or net profit for theself-employed), said Tom Clark, public-affairs specialist for theadministration's Fort Worth office. Income from pensions, stockdividends, investments or even rental property is unrestricted, he said. Retirement coach JaneHardwick said people needto start thinking about retirement long before they become old enoughto receive benefits."Retirement can be the longest time of a person's life," shesaid."They need to start thinking about what they want to do 10 years beforethey retire."

And Rosenthal said many of his clients find out earlyretirement isn't what they thought it might be.

"I've had clients tell me they don't want to work a day after62, then they retire and six months later are bored out of theirminds," he said. "But they've turned their benefits on and get caughtin that reduced amount."

There is a way out of the life-long penalty attached to earlywithdrawal, Clark said. Contact the administration, and file anapplication to stop getting your checks. If you repay what you'vereceived, then you can get your full benefit at your full retirementage.

Even if you can't repay what you've received, you can stillstop future payments, Clark said. But you will be penalized for themonths you collected early when you start receiving the benefit again.

Taxes also affect the early-retirement question. Aboutone-third of all people who receive Social Security benefits have topay taxes on their benefits, according to Martin Olguin, spokesman forthe administration's Dallas office. If a person files a federal taxreturn as an individual and has a total adjusted gross income (whichincludes pensions, stock dividends, interest, etc.) of more than$25,000 (or $32,000 for a joint return), that person would have to paytaxes on part of the Social Security benefits, he said.

Bottom line: If you're working and over the earning limit,don't go for early withdrawal, Rosenthal said.

"If you think you want to retire at age 62," he said, "try atrial period of at least three to six months to get an idea of whatretirement is like."

Source: The Record.Powered by Yellowbrix.

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