When to retire under the social security system.

Experienced Small Business Accountant – Some people dream of retiring early. Others prefer to continue working and saving money until they are age 65, or even past age 65. Although other issues—such as benefits available from an employer—factor into a decision about when to retire, a worker has three options under the social security system:

·         (1)  Retire before full social security retirement age, with a reduced benefit.

·         (2)  Retire with a full benefit at full social security retirement age.

·         (3)  Continue working past full social security retirement age and earn additional benefits for each year of work until reaching age 70.

Although most people think of 65 as the “magic” age for retirement—the age at which a worker can stop working and receive a full social security benefit—this was true only if the worker reached age 65 before 2003. If born in 1938 or later, a worker is not eligible to retire with full benefits until he reaches the age indicated in the following table:

                    Full Social Security

Year of Birth           Retirement Age

===========================================

1937 or earlier             65

1938                  65 and 2 months

1939                  65 and 4 months

1940                  65 and 6 months

1941                  65 and 8 months

1942                  65 and 10 months

1943-1954                   66

1955                  66 and 2 months

1956                  66 and 4 months

1957                  66 and 6 months

1958                  66 and 8 months

1959                  66 and 10 months

1960 and after              67

 Observation Year 2003 was the first year in which the phased-in increase to full social security retirement age applied to individuals electing to receive full social security retirement benefits, because individuals born in 1938 attained age 65 in 2003. Because individuals born in 1938 reached age 62 in 2000, an increased reduction in benefits imposed for persons electing to begin receiving benefits more than 36 months before reaching full social security retirement age first applied in 2000, when individuals born in 1938 first became eligible to elect to receive early social security retirement benefits.

 Observation Although full social security retirement age has increased for individuals born after 1937, the eligibility age for Medicare currently is not scheduled to increase above age 65.

 Recommendation Before making a decision to take social security benefits, it is important to have a good understanding of how much the benefit would be at different ages.

Coordinating retirement decisions with a spouse. The decision of when to retire and start receiving social security benefits can be more complicated for married couples. For example, a decision to retire and take a reduced benefit at age 62 that may seem appropriate for a single beneficiary may not be financially sound for a married beneficiary with shortened life expectations, since this decision could serve as a cap on the surviving spouse's payout.

When both spouses are eligible social security benefits, financial advisors have suggested a variety of methods for maximize benefits over their lifetimes, strategies that depend on their respective ages and earnings records. For example, one strategy would be for a spouse with the lower earnings record (usually the wife) to claim benefits at age 62 and for the other spouse (usually the husband) to delay filing until almost 70. Another strategy would be for the wife to file for her reduced benefit before age 66 and for the husband, at age 66, to file for just a spousal benefit based on his wife's earnings. Then, at age 70, the husband files for full benefits (with the delayed retirement credit) on his earnings history.

If you have any questions on this topic or would like to discuss some planning strategies with me, please call. I look forward to hearing from you. Click this link to view our YouTube video http://youtu.be/EYJdQtbPZAI

Amare Berhie, Senior Tax Accountant

ABA Tax Accounting

info@abataxaccounting.com

(651) 621-5777