Social Security Benefits

[Eldon R]

I am 61 years. I am researching to see if I should take my Social Security benefits starting at 62, with reduced benefits.

My wife works. I can manage financially without receiving the social security income, but it would help.

My questions:

1. From a tax point of view, is it beneficial to receive early (reduced) benefits? I will receive only one pension from age 65 onward with no inflation raises.

2. What is the breakeven point? People tell me the breakeven age is at 76 to 78 years.

Any help would be greatly appreciated.

[Unregistered]

Social Security

It does appear that the breakeven date is your 78th birthday, considering a 25% reduction for benefits at age 62 and only gross payments. If a 4% return on invested benefits is factored in, the breakeven increases one year to age 79. Therefore, mortality expectations should be compared against those numbers as well as the need for funds, and other non financial considerations. It is likely that most new recipients will end up paying taxes on 50-85% of their benefits, because the threshold does not increase with inflation, and relief is highly unlikely given the financing projections. 15% is currently a minimum tax free amount, and COLAs are awarded. Both of these benefits could be under siege in coming years.

[Brad Imsdahl]

Social Security Benefits at age 62

Some things in life should not be decided on by the tax consequence. Sure, you might pay tax on 85% of the benefit, but most of us currently pay tax on 100% of the benefit from earning a living. So if you look at it from that standpoint, you got a 15% tax cut for collecting social security.

The other issue has to do with whether reduced benefits now are better than higher benefits later. Some say the break even point is about 78. Others say if you invested all of your benefits at age 62 to full retirement age, the full retirement age benefits would never catch up to the accumulated age 62 + earnings benefit.

Both of these issue are irrelevant to me, however. What is more important to me is the quality of life issue. Who cares how much more or how much less your accumulated wealth is when you are old and dieing in a nursing home? I would rather enjoy the money now while I still have the health to enjoy living. Somebody will always take care of you in your old age. Why not take care of yourself now, collect what you can while you can, and stop worrying about whether your estate will have 3.27% greater wealth when you die or not.

[Lance Emerson]

Agree

The longer you have to wait for a tax benefit, the less impact that benefit will have. In fact, some tax experts say that if you have to wait longer than 10 years for a tax benefit, it's not a tax benefit at all.

A previous response hit the nail on the head:

"Both of these benefits could be under siege in coming years."

Unless you have confidence as to what Congress will do with the tax law for the next fifteen years, any projections you make will be shaky.

I'd take the money as soon as you can. Otherwise you run the risk of having all that planning and waiting go down the drain when they change the tax law ten years from now.