1/31/2013 6:45 PM ET|
5 reasons to delay Social Security
It's tempting to sign up for a guaranteed monthly payout as soon as you're allowed, but the case for waiting is strong.
One of the most critical retirement decisions a soon-to-be-retired worker needs to make is when to collect Social Security benefits. Having dependable income as early as possible certainly relieves a lot of the anxiety that can come from losing a regular paycheck, but you shouldn't ignore the huge increase in benefits if you delay collecting Social Security.
The best age to claim Social Security will be based on each person's circumstances. But, in general, delaying Social Security is going to be the better choice. Here are a few reasons why:
The biggest retirement risk is longevity, and delaying Social Security will reduce the risk of running out of money. If you delay Social Security benefits, you will get a bigger check every month. That means more stable income you can count on even if you miscalculate your retirement planning and spend every penny of your savings and investments. Your monthly payments will increase by 7% to 8% for each delayed year, which could have a huge impact on your retirement finances.
Each cost of living adjustment (COLA) will be bigger. Social Security benefits increase by a percentage of the current payout to keep up with the cost of living. If you start collecting a higher amount by delaying your start date, the same percentage COLA increase will have a higher dollar value.
You can minimize the chance of regret. A retiree will generally get a larger lifetime benefit after age 78 by delaying claiming Social Security benefits. This means that if you live past 78, you might wish you hadn't taken benefits early because your lifetime payments will be smaller than if you had delayed claiming. A person who does not live past 78 would have been better off claiming earlier. (This example compares the start of benefits at age 62 and at age 66.)
You can convert your pretax nest egg to a Roth IRA at a lower tax rate. A portion of Social Security payments could be subject to income taxes. By delaying Social Security during the early part of your retirement, the monthly payments will not be included in your adjusted gross income. This means you can convert your pretax nest egg, including a traditional 401k, to a Roth individual retirement account at a low tax rate.
Let's say a couple no longer has regular income because both spouses have retired. Based on 2012 tax brackets, they could convert up to $70,700 of pretax income to a Roth IRA and pay just 15% of that amount in taxes. After that, all investment income derived from that $70,700 throughout their lifetime will be tax-free once the money is in a Roth IRA.
There are some nuances, of course. Roth conversions have the potential to increase your risk of a tax audit. So, it's a good idea to speak with a tax professional before attempting such a move. However, this could be said about anything that adds complexity to your tax return, and making the conversion could be a huge benefit for those who can take advantage of this tax maneuver.
The odds of living longer are increasing. With advancements in medicine and wellness research, many people are living longer. Delaying benefits will likely be the better choice for healthy retirees. While waiting to claim your benefit certainly has costs, it will give you more income in your later years when you are likely to need extra money the most.
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Retire at 62. Get a part time job without stress if you need a little extra moey.. If you live past 78, God blesss you. If you don't live to 78, you at least got some retirement. I tell my son, enjoy life. When I was young a right out of the army, I backpacked around the country. My father was mad at me. He told me to get a job and I could travel when I retire. I told him I would rather travel while I was young.
I thought I had met some real A-holes my working over the last 35 years. Then my job was outsourced and I spent 71 weeks on UE(thank you democrats). During that time I was reduced to applying for work through employment agencies who could have cared less about me and more about how much revenue I brought to them.One young woman even had the gall to tell me she just threw resumes from 99 weekers in the trash(I was able to get someone to say I had been working for them). Since then I have been making less than half what I made in 2008 and the A-hole content has at least doubled. Fortunately the company I work for now is based on the other side of the continent, they have shorted me on my time and do not pay overtime even after they begged me the first year to help with the extra time overtime during the first years holiday season. Well I don't work any overtime for them anymore. I was hired parttime to begin with? No benefits of course.
Less than a year and I am tapping out. Let them teach some non english speaking person to do what I do and good luck with that.
And yes I do not trust our government with the money I have given them my entire working life. Only to watch it being given to people who do absolutely nothing. I Know 3 brothers living off the radar. They haven't done an honest five years work between them yet they are all collecting disability SSI and sit around and smoke pot all day. That's how stupid I am. I can get a job; but I can't figure out how to milk the system the way these clowns are.
Sorry about the rant.
Get it while and if you can. Because it is only for the do nothings as things sit right now.
The federal gov't would love nothing more than for all SS recipients to wait as long as possible, hoping that the majority die off before any payouts are taken.
I'm only 56 now, but you can bet that I'll be collecting SS the very first month I'm eligible. After all, I'll be "entitled" to it.
The article suggests that if you live longer, you'll want to start SS later. The numbers differ for each individual, but here's some reasons why you should take SS as soon as you're eligible for the full amount:
1. The break-even may be later than you think. In my case, even assuming a very low inflation rate of 3% (it will be a lot higher in a few years), I'll be 91 before I reach break-even between taken regular SS at age 66 and a larger amount at age 70.
2. As noted below SS is collecting less money than they pay out. How will they pay the difference? With money from other gov't agencies that is currently held in the form of IOUs. How will the other agencies pay? By having the federal gov't raise taxes (the money ain't in the bank!).
Best bet is to collect as soon as you're eligible for full benefits. If you're worried about taxes, put more money in your IRA, or 401k/403b. That way it's shielded from taxes until you take it out.
PS I think a lot of these articles are being written by gov't wonks who want to save SS some money.
They aren't telling ya theres going to be A run on Social Security.In fact it's already started.Wait til the boomers that were born between 1953-1957 start drawing their social security at 62.
I believe it's going to be 80-90% of us.They will be trying to find other ways to fund it.Maybe tax it more.
Congress is going to have it's hands full.Sit back and watch.
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