Timing on Taking Social Security

[rb26934814]

It seems like a simple question, but I cannot get a straight answer, arrg!!! Help! If I retire at 64, and no longer work, and I decide not to take SS benefits until 67, will the SS amount continue to grow by waiting those 3 years? If it does not, I should just start taking it at 64, right?

[GailL1]

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@rb26934814 wrote:

It seems like a simple question, but I cannot get a straight answer, arrg!!! Help! If I retire at 64, and no longer work, and I decide not to take SS benefits until 67, will the SS amount continue to grow by waiting those 3 years? If it does not, I should just start taking it at 64, right?

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Your benefit will change some if you stop working at 64 (no further contributions) and not take your benefit until 67   The reason it will change SOME is that the Average Wage Index (AWI) will change every year at least some and this is where those who are not YET receiving a SS benefit are included in the annual COLA (cost of living adjustments).  The AWI is important in figuring your SS benefits.

SSA.gov- National Average Wage Index

However,if you decide to take your (REDUCED) benefits at 64, you would still get any annual COLA but it would be based on your REDUCED SS benefit - 

The bigger difference is gonna be in the actual benefit and at what age you decide to begin it - at 64, your are younger than your full retirement age (FRA), thus a reduction in benefits.  

OR even waiting until later than FRA (put to a max of 70 years old ) to begin.  OVER FRA you get a “Delayed Retirement Credit” that boost your FRA benefit at a rate of about 8% a year.

So the longer the money stays untouched up to a maximum age of 70 years old - the higher the amount it is gonna be - SSA gives no more $$$$ increases in the benefit past 70 years old.   

[rb26934814]

Whew, thank you!!!!!

[k380494p]

If you retire at age 64, you will not have reached your full retirement age.  Your benefit will be reduced.  You can contact the Social Security Administration to calculate your benefit both at age 64 and 67.

Also, Medicare doesn't kick in until age 65, so you will have to arrange for medical coverage.

[rb26934814]

Thank you so much for your response. So sorry, the term reduced is confusing here. Let me try to be clearer with my question. I am going to retire at 64, but I will not take my Social Security benefits at that time. My thought was to wait till 67, if the benefit amount would increase over those three years I am not working? I’m trying to figure out if there is a benefit to waiting to collect with above scenario?

[rb26934814]

I guess I'm stumped for an answer again 🙂

[Tonster521]

@rb26934814 It appears you may be viewing the word, "reduced" as a negative. I am copying and pasting a brochure from the SS Website which may help you understand the options you have (start Early, at Full Retirement, or Delay) with the SS Program. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.ssa.gov/pubs/EN-05-10070.pdf  If you visit the SS Website, please review Primary Insurance Amount which is your Basic SS Benefit payable at your Full Retirement Age (i.e., age 67). If you start your SS Benefit before your FRA , your SS Benefit is an actuarial equivalent  of that PIA . It is reduced on an actuarial basis. So, it is essentially the same SS Benefit based on average life expectancy which hovers between ages 83 and 84 and a discount rate of approximately 3%. The math is not simple. However, if you use the above factors, you will be very close to actuarial equivalency. Second, you use the word. "grow" which may not be accurate. For example, if your PIA at FRA is $2,000 and your age 64 SS Benefit is $1640, waiting 3 years will increase your SS Benefit by $360. However, that wait will cost you $59,040 ($1640 X 36 months). You may recoup that cost at some point in the future should you live longer than average life expectancy. Hope this helps.

[rb26934814]

Thank you! I’m going to definitely meet with someone this year to lay it all out. It’s probably a poor analogy, but I think of your hypothetical $59,000 as getting some principle back from my investment, and what’s left feels like a reverse mortgage. When I think of life expectancy is of 83 to 84, losing 20 or $30,000 in the long run seems like maybe a good trade-off. Still confused, but hey, grateful to have the problem.

[Tonster521]

@rb26934814 After I replied to your posting, I thought it may be helpful if I provided info from the SS website regarding the paying of FICA taxes and contractual rights. The Supreme Court ruled in 1960 that we do not have any contractual rights to SS Benefits https://www.ssa.gov/history/nestor.html The SS Program is a social insurance program funded with dedicated taxes (FICA) as opposed to retirement plan or account similar to an IRA. 

[Tonster521]

@rb26934814 I agree your analogy is not good. We do not invest in the SS Program. We do not have an account wherein interest or dividends are earned. We simply pay payroll taxes pursuant to the Federal Insurance Contribution Act (FICA) on earnings as long as you work. Those FICA taxes are not correlated to your Primary Insurance Amount (PIA). As I previously suggested, reviewing the PIA provisions at the SS website is very helpful. Your PIA is based on 35 years of indexed earnings and is payable at your Full Retirement Age (i.e., age 67). However, the SS Program provides for an earlier payment as well as a delayed payment. An earlier payment will require an actuarial reduction to your PIA whereas a delayed payment will provide an actuarial increase to your PIA. If you want the highest monthly SS Benefit, you need to delay to age 70. That delay may not provide a greater amount of SS Benefits because you will need to live longer than the average life expectancy. The same may be true if you start your SS Benefits at FRA (age 67) as opposed to starting at age 64. The SS Program provides you with those options (Early, FRA or Delay) to elect. Your need to consider other factors such as your health, survivor (if any), lifestyle, and taxes. With greater amounts of SS benefits and other income, more folks are required to report 85% of their SS Benefits as taxable which amounts to repaying SS Benefits and Medicare each year they exceed the thresholds.  

[sktn77a]

My understanding is that you will start taking SS at your FRA.  You will receive your PIA based on your 35 highest earning years.  By not working the final 3 years, you will probably lose out on your three highest earning years, so your SS will be lower than if you had worked those years.  But I'm not aware you will be penalized for stopping working before your FRA other that as above.