Hello Megan,
Clients ask us if we think Social Security is going broke and if they should take Social Security early. These are fair questions, considering the dire news reports on this subject.
We cannot predict the future, but we can offer a few observations. It is logical that changes have to be made to restore solvency to the system. This could include raising the retirement age, or increasing the payroll tax cap on earnings, or some other combination of ideas that have been proposed.
If you are skeptical about the future of the Social Security system, you may be tempted to claim your benefits early. Almost 25% of workers sign up at age 62. Some have very legitimate reasons for doing so, but what about you?
After decades of payroll taxes deducted from your paycheck, it is easy to want to get your "fair share.” You feel you have earned these retirement benefits, and you have. Combine that feeling with the reports that by 2035 a reduction of 20% to 30% in benefits will have to be made to make the payouts to keep Social Security solvent and it is easy to sign up online for your benefits.
Drawbacks to filing early
But hold on! First, if you are not at full retirement age and you claim and you earn more than $22,320, your social security earnings will be reduced. (Click here for more details on how this works).
Second, even if you and your spouse are retired and you claim your benefits early, you will lock in a permanent benefit cut. The way to get more money from Social Security is to wait to claim. If you wait from age 62 to 67 you will receive almost 43% more. If you wait until you are 70, you will receive a 77% increase in the monthly amount, compared to age 62.
When to quit working and when to claim Social Security are two separate decisions
We are not suggesting that people keep working until until they are 70 to wait on Social Security. If it benefits you to wait to claim after full retirement age, we could help you set up an income stream from IRAs or other accounts to close that gap. When to quit working and when to claim Social Security are two separate decisions. We are ready to help you through these complicated decisions. Give us a call.
Sincerely,
Cass, Bleckley and Megan
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