Reasons to save money – As people in the United States approach the age of 62, they have a choice about when to collect Social Security benefits. People wonder if they should start collecting benefits at 62 years old, wait until they reach full retirement age at 66 or 67 (depending on the year they were born and plans in money handling) or wait until the maximum benefit age of 70. The longer a person waits to receive benefits between the ages of 62 and 70, the higher his or her monthly Social Security benefits will be.
People should be sure to plan money handling for the long term when thinking about retiring and several reasons to save money. People are living longer than they did when Social Security began paying benefits to seniors, and while the average retirement age decreased during the 1950s to the 1990s, recently the average retirement age has increased. According to the Social Security Administration about “one out of every four 65 year-olds today will live past age 90, and one out of 10 will live past age 95.” Women tend to live longer than men, so it’s important that future retirees choose a retirement age based on their individual circumstances.
Social Security Early Retirement
According to AARP’s article “Strategies to Maximize Your Social Security,” deciding when to begin Social Security benefits depends on both gender and marital status. Single women in general will do better financially to wait for as long as possible because they tend to live longer and benefit from higher payments taken later. Hence, reasons to save money here is important. Single men may want to begin benefits sooner because of their shorter life expectancies, especially if their family medical history points to a shorter life expectancy.
Married couples where the wife has had low or no Social Security wages should consider having the wife collecting benefits as early as possible and delaying benefits for the husband as long as possible with respect to reasons to save money. Since early benefits allow a couple to collect for an extended period of time, the couple can preserve the husband’s higher benefit rate by waiting to file for his Social Security benefits. Also a wife who survives her husband is eligible for 100 percent of her husband’s benefits.
According to research by the Center for Retirement Research at Boston College in AARP’s article, “The best formula for the average household is for the wife to claim at age 62 and the husband to claim at age 66.” If the wife’s wages were close to the husband’s wages, it still makes financial sense if the wife claims early Social Security benefits and the husband waits to file for higher retirement benefits at age 69.
Social Security Retirement Age
According to AARP, it may not matter whether people choose to receive early Social Security retirement benefits at age 62, 65 to 67 or delay receiving benefits to age 70 as long as they believe they’ll live until age 81. The financial numbers for these three options are designed to break even at age 81. So as people live past 81, they are actually ahead financially as far as their Social Security benefits are concerned.
People who expect to work from age 62 to 66 and have reasons to save money should keep in mind that every dollar earned after age 62 in excess of the earnings limit set by Social Security each year reduces benefits at the rate of $1 for every $2. Not only are initial benefits reduced by earnings penalty, but early commencement locks in lower benefits for life. So retirees planning to work and collect Social Security should stay under earning limits each year to avoid future decreased benefit amounts.
Income Tax and Early Social Security Retirement
Retirees also have to keep in mind federal and state taxes apart from reasons to save money. Depending on the state people live in, there may be state income tax requirements in addition to federal income tax liabilities on Social Security income, though most states are moving away from taxing seniors on Social Security benefits.
In terms of money handling, seniors who are considering moving to another state to save money on retirement income should realize there are a lot of variables depending on their financial situations and Social Security retirement income. State income tax friendly states may charge higher sales, local and property taxes that outweigh the benefits of not paying any state income tax on Social Security benefits. Federal income taxes on Social Security income are the same for all states.
Since most people’s financial situations vary, it’s best to discuss early Social Security retirement decisions and tax liabilities with a financial expert and considering money handling strategies.