When can I start receiving my benefit?

Age 62 – You can start receiving your benefit at age 62, but you’ll only receive 75% of your full social security retirement benefit, and the reduction is permanent. In addition, if you continue to work or have other provisional income, your benefit may be reduced even more and a portion may be subject to income tax.

Ages 63 to 65 – The longer you wait, the larger monthly benefit you will receive. At age 65 (for those born before 1960) for example, you’ll receive 93.3% of your full benefit permanently.

Age 66 – Age 66 (for those born before 1960) is considered full retirement age. If you wait until age 66, you’ll get 100% of your full benefit.

Ages 67 to 70 – After age 66, for every year you wait to start receiving your benefit, your benefit will increase by 8%. The 8% per year increase continues until age 70. There is no advantage to delaying past the age of 70.

Up to 85% may be subject to federal income tax.

If your provisional income exceeds $25,000 (single) or $32,000 (married filing joint), a portion of your social security retirement benefits may be taxed.

Careful planning may help you avoid the “tax torpedo” that bombards many retirees. In the current system, with the right investments, it is absolutely possible to live a comfortable lifestyle tax free in your retirement years.

Be careful with earnings if you start receiving your benefit before age 66.

From age 62 up to age 66, if you continue to work and earn more than the limit ($15,720 in 2016), your monthly benefit will be reduced. The limit is increased in the year you turn 66 (increased to $41,880 in 2016).

The benefit reduction is only temporary and may be made up with an increased benefit at full retirement age.

On a positive note…

Under the current system, your social security retirement benefit is inflation adjusted. In theory, that means that your monthly benefit will provide the same standard of living 20 years from now as it does today. Your other sources of retirement income may provide an opposite return, declining in inflation-adjusted value each year. So the longer you delay your social security retirement benefit, the better your inflation adjustment will be.

What to do? What to do?

Before I offer some general guidelines, I’ll make this disclaimer: social security retirement benefits are not guaranteed by the U.S. government. So if you are worried about the solvency of the system or future reforms, such as “means” testing, the guidelines don’t apply. Take your money and run.

If you are willing to gamble on the system, consider these general guidelines:

1. If you have health problems and believe that your life expectancy is below average (about 77-78 years), you may want to consider receiving your benefit at age 62.
2. If you believe that your life expectancy is more than 82 years, you may want to consider delaying your benefit until age 70.
3. If you continue to work and earn more than the limit ($15,720 in 2016), you may want to consider delaying your benefit until your income decreases.
4. If you are a lower-earning spouse and your higher-earning spouse will wait to begin receiving benefits at age 70, you may want to consider receiving benefits at age 62.
5. If your provisional income is less than $25,000 (single) or $32,000 (married filing joint), you may want to consider receiving your benefit at age 62.
6. If you have other sources of retirement income that can be utilized tax free, you may want to consider delaying your benefit up to age 70.

So what is the best age at which to start receiving your benefit?

As always, consult your CPA. Time spent planning could save you a significant amount of money. There are too many factors to consider to make a decision without an in-depth personal analysis.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.