Jeff Eischeid discusses fundamentals of planning for Social Security benefits
Online PR News – 28-March-2012 – Atlanta, GA – One of the most often asked and confusing questions is: when should someone start taking their social security benefits? There are a range of factors to consider, both economic and otherwise. In general, the sooner a person starts taking benefits, the smaller the monthly benefit. However, there are some people who are concerned about the solvency of the Social Security system and make the argument to “get it while you can.”
The system allows retirement benefits to begin as early as age 62. But anyone who starts their benefits that early faces a diminution in the amount of their benefits. The normal retirement age is no longer age 65. The US is now in the process of postponing the normal retirement age to 67. (see phase-in table below) The benefit reduction for early retirement is approximately 25% and it is permanent in that the benefit does not increase when the beneficiary reaches regular retirement age.
Birth year Normal Retirement Age
1943-1954 66 yrs
1955 66 yrs and 2 months
1956 66 yrs and 4 months
1957 66 yrs and 6 months
1958 66 yrs and 8 months
1959 66 yrs and 10 months
1960 and later 67 yrs
Conversely, a beneficiary may decide to defer taking their benefit until after reaching regular retirement age. There is an incentive for delaying payments in this fashion. For each year benefits are delayed past regular retirement (up to age 70) a delayed retirement bonus is added to the payment the beneficiary is to receive. The amount of the bonus varies by age, but can substantially increase the ultimate payout. For example, if the bonus rate is 8% and payment receipt is delayed for four years, the bonus would increase the amount to be received by 32% (4 years * 8%).
Not unlike making life insurance decisions, people are making a bets on how long they are going to live. It does not make a lot of sense to delay gratification to get more in the future if the person is not around to receive it. Obviously no one knows their life expectancy for sure, but factors can include medical history, the family’s medical history, etc.
Fortunately there is a wealth of information available online to assist people in making social security retirement decisions. The Social Security brochure “Retire Online” is very helpful and can be found at http://www.ssa.gov/pubs/10522.html. The government is encouraging online applications for social security. To apply online go to http://www.ssa.gov and navigate to the Apply Online for Retirement Benefits button. Caution, people cannot apply more than four months before their 62nd birthday.
- Jeff Eischeid CPA
Jeff Eischeid is a partner at Bennett Thrasher. Bennett Thrasher has become one of Atlanta's largest full service CPA and Consulting Firms.