Managing Social Security can have Great Benefits
Current Perceptions can hurt
Many Americans are convinced that Social Security will disappear in the near future. There is really no solid proof one way or the other as to the fate of the Social Security system. The perception, however, causes people to either neglect learning about or managing their Social Security benefits. The perceived impending demise of the system also causes many people to take their benefits early at a reduced rate rather than risk losing them altogether should the system crash and burn. Taking benefits early can end up costing a lot of money should the retiree live longer than expected and could negatively impact survivor benefits should the retiree die.
One of the key pieces of information a person needs in deciding when to take their Social Security benefits is knowing what their “Normal Retirement Age” (NRA) is. According to the Social Security Administration, if a person was born in 1937 or earlier the NRA is 65. If their birth date is 1970 or later the NRA is 67. Anyone born in between 1937 and 1970 has an NRA of 66. Delaying taking benefits until retirement age or later could result in significant increases in monthly income for the retiree and any survivors.
How the NRA Affects Benefits
There is a rather complicated formula used to assess the effects of the timing of initiating Social Security benefits. If a retiree elects to take benefits before their NRA the benefit amount is reduced by 5/9ths of 1 percent per month up to 36 months. For example, a person accepting benefits 9 months prior to normal retirement age would lose 5 percent of their Social Security benefit. Conversely, if a person waits until after their NRA an increased benefit is paid. For example, if a person delays taking benefits for a little over 4 years an increase of about 131 percent will be added to their Social Security pay out.
The Economy is a Factor
Inflation is almost nil in the current economy. However, many are predicting high inflation to come in the relatively near future. Higher inflation has an impact on deciding when to take Social Security benefits. High inflation means higher cost of living allowances. Delaying taking benefits during times of high inflation can significantly increase the eventual benefit payout.
Retirement Income Thresholds have changed
Many people look forward to not working at all during their retirement. Days of leisure and travel are what most people envision for this time in their lives. The reality is that many retirees have to work and some choose to start whole new careers after they retire. It is important to note that how much you earn during this time affects benefits. With a NRA prior to 2009 benefits were reduced by $1 for every $2 earned beyond $14,160 per year. An NRA 2009 or later allows a person to earn $37,680 with a reduction of only $1 for every $3 beyond that threshold. This is a significant benefit for working retirees. Health and viable career alternatives are important factors in deciding when to take Social Security benefits.