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MAR
18
Is 62 the Magic Number for Social Security?

For most baby boomers, planning for income in retirement is an important aspect of gearing up for leaving the workforce. While some retirees will have a guaranteed income stream from an employer pension plan, others will need to rely on the combination of accumulated balances in retirement savings accounts like IRAs or employer-sponsored plans in combination with some level of monthly Social Security income. For those who are near retirement, it is necessary to understand when you are able to begin social security income and how that timing may affect your overall financial picture in retirement.

Individuals who have worked and contributed to social security tax are able to start receiving their social security benefits as an early retirement starting at age 62, but have the option to postpone payments until normal retirement age (65) or full retirement age (70). It may seem like the right choice to begin social security income sooner rather than later, but there are caveats to this income plan. The greatest concern is that those who elect early retirement benefits through Social Security starting at age 62 will receive a reduced benefit – at times, 25 – 30% less than what they would receive if they waited until normal or full retirement age. This amount is also set at the time benefits are elected, and will not increase the full benefit amount once a retiree turns 65. Although there will be a greater number of social security checks received, those opting for an early payout may receive less over a lifetime.

Retirees who elect to begin social security retirement benefits after age 62 may receive fewer total benefit checks, but have the advantage of increasing their monthly benefit amount. For each year past the early retirement age of 62, retirees earn an 8% delayed retirement credit on their monthly social security benefit, up until age 70. This increases the total monthly amount of your benefit check and over a lifetime, can mean more total income throughout your retirement years. For both an early retirement and a normal or full retirement, social security benefits are locked in when selected, although a cost of living increase is provided each year, based on your monthly benefit amount. Retirees who decide to wait to begin social security income will see greater increases each year because the monthly benefit base is higher than what would be paid out for an early retirement.

There is no magic age for each individual as it relates to when to begin social security retirement benefits. For some, the beginning social security income at age 62 may make the most sense for their retirement plans and may allow them to leave the workforce earlier than normal retirement age. For others, however, having a guaranteed income benefit that is higher may be worth postponing social security income for a few years after age 62. It is important to consider your specific circumstances prior to receiving your social security income, as well as have an understanding of the advantages and disadvantages of the timing of your choice.



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