Drawing SS at 62

[OtisMozzetti]

Social Security earnings limits

The earnings limit before benefits are reduced by 50 cents on the dollar is $1130 per month during the first year, but only after benefits are started before normal retirement age. Then in subsequent years, perhaps age 63, 64, 65, there is an annual limit of $12 x 1130 = $13,560. All of those numbers are adjusted for inflation each year.

If there are some months during which benefits are reduced, then when full retirement age is reached (age 66 most likely) the amount of reduction for early retirement becomes smaller since everything is recalculated as if you weren't retired early during those months where benefits were reduced.

Also, the earnings while receiving benefits might increase benefits because the earnings record might show improvement.

During the year that normal retirement age is reached, there is a much higher annual limit, something about $30,000 which can be earned before reaching normal retirement age such as age 66. After normal retirement age, earnings do not reduce benefits at all.

All this is covered in a publication entitled "How Work Affects Your Benefits" available at www.ssa.gov.

So I would urge Jiggers and others to think about earning money some portions of the time and collecting benefits during other parts of the time with an eye that it will all come out in the recalculation wash in the end at normal retirement age and sooner.

[Zee]

However, if you start at age 62, you will forever forfeit 25% of your "normal" full benefit, and in addition for the first four years (until you're 66) you will have to pay back $1 of that reduced benefit for every $2 in earnings above a certain amount ..

Roland...Your response is good and thoughtful. However, it's incorrect. You don't necessarily forfeit the increased benefit "forever", it can be paid back.

Here's a recent article, you might find it interesting.

http://articles.moneycentral.msn.com/RetirementandWills/RetireInStyle/AHiddenSocialSecurityBenefit.aspx?page=1

[erchess]

Introduce Me?

Yes, I see where you joined us on June 24th. That's only a few days, so keep on reading
the Webboard. It's kinda slow right now, but things'll pick up after July 4th, I assure you.

Do you mind if I introduce you on that board?

Go ahead and introduce me if you wish but I don't know when or if I will go back to that board. They won't let us mention numbers when we discuss fee setting. (I would think better of them if someone explained why their risk from such would be greater than the risk of TMI but I don't see that happening.) I also don''t particularly like having the threads sorted by topic. I'm not sorry I joined NAEA and I suspect that there are just as many people who prefer their format to the one here as join me in preferring the one here.

[JohnH]

Zee: That was a VERY interesting article. Thanks for posting it - I'm putting it in my research folder for early retirement questions.

I also noted that although he addresses the article to people who have made the mistake of drawing benefits early, he concludes with the statement that deferring benefits is a good investment as a general rule, especially for men.

[Roland Slugg]

Didn't know that

You're right, benefits will increase at "full retirement age" (66 for most new retirees now). I had always thought they were gone forever. Here's one of the Q&As on the SSA's own web site regarding this issue:

Will you receive higher monthly benefits later if benefits are withheld because of work?

Yes. If some of your retirement benefits are withheld because of your earnings, your benefits will be increased starting at your full retirement age to take into account those months in which benefits were withheld.

As an example, let us say you claim retirement benefits upon turning 62 in 2007 and your payment is $750 per month. Then, you return to work and have 12 months of benefits withheld. We would recalculate your benefit at your full retirement age of 66 and pay you $800 a month (in today’s dollars). Or, maybe you earn so much between the ages of 62 and 66 that all benefits in those years are withheld. In that case, we would pay you $1,000 a month starting at age 66.

That little-known option described in the "moneycentral" article would not appeal to very many people. Anyone able to write a check for $90,000 or so in order to increase his SS benefit at, say, age 70, probably wouldn't have started drawing SS at age 62 in the first place.

Our clients ask us about social security all the time ... at least many of mine do ... so I believe it's good to have a working knowledge of the basic options, especially the 62 versus 66 question. When the basic ages were 62 and 65, and starting at age 62 meant getting 20% less in monthly benefits than starting at age 65, the crossover point was age 77 ... 15 years after age 62, or 12 years after age 65.

This can be proven by constructing a simple spreadsheet, or even with a simple algebraic equation: .80(Y+3) = Y ... where Y equals the number of years after age 65 and .80(Y+3) represents 80% of the benefit amount for 3 additional years. "Y" turns out to be 12 years, so the crossover point is age 77 (65 + 12) ... or was until fairly recently.

For people born after 1942 the "full retirement age" is now 66, and starting at 62 means forfeiting 25% instead of 20% of the full benefit. For these folks the formula becomes: .75(Y+4) = Y. Solving for Y still yields 12, but 66 + 12 becomes age 78. Thus, 16 years of benefits started at age 62 equals 12 years of benefits started at age 66, at age 78 in both cases ... the new crossover point. Some may be able to see all this intuitively; it's not that deep.

I have not worked out the crossover points by considering other alternative starting ages, such as 62 vs 70, or 66 vs 70, but if I do I will post them in case others may be interested.

I realize that the above analysis ignores present value considerations. However, depending on any given recipient's spending versus savings lifestyle, a present value factor may or may not be relevant.

[Zee]

Y. Anyone able to write a check for $90,000 or so in order to increase his SS benefit at, say, age 70, probably wouldn't have started drawing SS at age 62 in the first place.

I wouldn't be so sure about that. Many Seniors have returned to the workplace in jobs or consulting situations earning a great deal of money (others aren't so lucky), and could easily save (or have saved) and could payback the money. Or, they may come into a substantial inheritance.

[Jiggers]

Hours worked

Does SS look at the hours worked when you are drawin SS benefits?

With my C Corporation, and trying to plan so that my salary is low enough to draw SS, by paying my spouse more, by paying more rent, my net after my salary will be close to none because of this being PSC subject to the higher tax.

However, my hours during tax season won't be any less.

Will that have an effect on me drawing at 62? I earn my annual salary during those 4 months, yet won't draw it out except monthly over 12 months. The months in the latter part of the year show a net loss.

I know someone that due to his busines, couldn't draw a salary. Yet he had to work his C-Corporation Farm and all proceeds went to pay off some debt and operating expenses. SS refused to let him draw any benefits at 62 and made him wait until 65, even though he drew no salary and the 1120 for each of those years showed a net loss.

[ChEAr$]

hours worked

Does SS look at the hours worked when you are drawin SS benefits?

With my C Corporation, and trying to plan so that my salary is low enough to draw SS, by paying my spouse more, by paying more rent, my net after my salary will be close to none because of this being PSC subject to the higher tax.

However, my hours during tax season won't be any less.

Will that have an effect on me drawing at 62? I earn my annual salary during those 4 months, yet won't draw it out except monthly over 12 months. The months in the latter part of the year show a net loss.

I know someone that due to his busines, couldn't draw a salary. Yet he had to work his C-Corporation Farm and all proceeds went to pay off some debt and operating expenses. SS refused to let him draw any benefits at 62 and made him wait until 65, even though he drew no salary and the 1120 for each of those years showed a net loss.

Now that you mention it, I recall helping a client aged 62 once upon a time fill out the
SS questionnair relating to his first year's activities, and hours worked were a factor.

See www.ssa.gov for details.

[JohnH]

I thought this string generated lots of very fascinating discussion on all sides of the issue. So naturally I thought of it when I ran across the following article this morning.

Since we all encounter the "early retirement" question from clients, it might be another valuable bit of information to add to the aresenal. It isn't terribly technical, but it does provide some excellent food for thought...

http://finance.yahoo.com/retirement/article/105558/How-Much-Longer-Will-Boomers-Need-to-Work

[thomtax]

One other thing

Something that I have not seen mentioned (I could have missed it) is:
1. By transferring the money to his wife, the family will still have the same income.
2. If they live off this income, the ss payment can be saved and/or invested. This investment will affect the crossover point, possibly drastically, where more money has been received by waiting than taking it early.
3. It has been mentioned, but the family history of longevity needs to be considered. For instance, in my family, living past 80 is unusual. Therefore, 15 years added to 66 would be 81, so odds are against reaching the point of benefiting from later starting date.

LT

[JohnH]

I understand the logic of looking back on one's ancestors' longevity in considering how long we may live. Every one from medical professionals to actuaries takes heredity into account when evaluating the probablities for long life. However, it's also a fact that medical science progresses, people's lifestyles may differ from that of their parents, and a host of other factors come into play which may alter an individual's odds one way or the other. I'm not sure I want to make specific financial decisions based on such nebulous information.

In life, as in investing, past performance is no guarantee of future results. Or to state it another way, statistics are useful, but not very practical. If I place one hand in the freezer and the other on a hot burner, on average I should be feeling pretty good. Experience tells me that isn't a smart way to make decisions.

[Gretel]

In life, as in investing, past performance is no guarantee of future results. Or to state it another way, statistics are useful, but not very practical. If I place one hand in the freezer and the other on a hot burner, on average I should be feeling pretty good. Experience tells me that isn't a smart way to make decisions.

I agree with John. The past doesn't need to mean anything. Every moment you make a choice for life or death. If you stop believing everything what the medical society tells you, adopt a healthy diet, exercise and let go of fears, anger, etc. I bet you can easily and happily live to be one hundred not matter what your family history is. I and a friend of mine are just experimenting with the Miracle Mineral Supplement. The results are astounding.

[JohnH]

Gretl:
Nice experiment.
Be sure & let us know how it's working out when you reach 100.

I'm sure that if I live to be 100 I'll still be saying "If I'd known I was going to live this long I'd have taken better care of myself."

[thomtax]

If I place one hand in the freezer and the other on a hot burner, on average I should be feeling pretty good. Experience tells me that isn't a smart way to make decisions.

Just out of curiosity John, what were the circumstances that caused you to put one hand in the freezer and one on the burner? And what was that experience like? :-)
(Just kidding)

LT

[JohnH]

I was young, it was late, the party ran much too long, etc.
I'm sure you know what I mean...