Plagued by inflation, recession fears and doubts about the future social securityMore and more working Americans say they plan to claim Social Security benefits early while continuing to work. Here are the factors driving this trend and the pros and cons of following it.
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More People Claim Social Security Early
42% of Americans said they plan to apply for Social Security before they retire. full retirement age According to a 2022 study, while continuing to work National Retirement Research Institute – Up from 36% in 2021.
Workers who have paid retirement can claim Social Security benefits as early as age 62, but the decision could result in monthly benefits that are as much as 30% less than they would receive at full retirement age.that is between the ages of 66 and 67 Depends on year of birth. By waiting longer to apply, a retiree can increase her Social Security payments by 8% each year beyond the full retirement age she is waiting to apply, up to age 70.
As of February 2023, the average monthly Social Security check for all retirees is $1,693.88, according to the agency. Meanwhile, the average check for a 62-year-old retiring this year will be $1,247.40, and the average payout for a 67-year-old in full retirement will be $1,782.
Over 20 years in retirement, that $534.6 monthly difference would total more than $128,000 excluding retirement benefits. Increased cost of living. These adjustments increase your benefits by a percentage calculated annually to keep your retirement income in line with inflation.
Collect rewards early That’s not necessarily wrong, the planners point out. Many workers begin receiving Social Security benefits when they are forced to leave their jobs for reasons such as downsizing of the company, age discrimination in hiring, illness, or the need to care for family members.
breakeven point
Waiting to receive a large benefit check later means that the payee is giving up some cash flow. “Break-even point” According to financial planners, the total amount of benefits available in full retirement exceeds the full amount of cash that would be earned if one retired early, and typically retires around age 80.
Using this year’s average benefit amount, a person who started receiving benefits at age 62 would have earned a total of 254,000 over 17 years before they could collect a little more if they waited to claim a higher full retirement benefit. You can collect more than a dollar. By 2040, increased benefits for waiting will generate just over $2,000 in additional cash (not adjusted for inflation).
Tax considerations
Although Social Security benefits themselves are not taxable, a drawback of receiving Social Security benefits early is that many beneficiaries continue to work, so some or most of the benefits may be taxable. There is something. In fact, that tax could apply to those receiving benefits that earn additional income.
A single taxpayer with Social Security payments in excess of $25,000 in what the IRS calls “total income” will be taxed at 50% of the benefits, up to the income cap of $34,000. . At that point, taxes apply to his 85% of the benefit amount. Joint tax returners have limits of $32,000 each and hers of $44,000. Total income is the taxpayer’s adjusted gross income plus tax-exempt interest income from bonds and half of social security benefits.
Conclusion
An increasing number of workers in their early 60s are claiming Social Security, and this could be for a variety of reasons. Everyone’s retirement path is different, so it’s important to calculate your needs and apply Social Security accordingly. Remember to estimate if you continue to work while receiving benefits. your tax penalty.
Retirement planning tips
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Deciding when to claim Social Security is only part of your retirement planning. A financial advisor can help you see and understand all the variables involved in your retirement plan. If you don’t have a financial advisor yet, finding one isn’t difficult. SmartAsset free tools will match you with up to three vetted financial advisors who serve your area. You can also have a free introductory call with an advisor to decide which advisor you feel would be a good fit for you. Ready to find an advisor to help you reach your financial goals? Get started now.
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