Complete Investment and Advisory Services
Joseph N. Rubinstein, MBA
Diversified Securities, Inc.
Securities offered through H Beck Inc.
H Beck Inc. and Diversified Securities Inc. are not affiliated

Social Security - Retiring Early

The question "Should I start drawing Social Security benefits early?" has been around for along time. And with the minimum age to qualify for full social security benefits going up to 67 for those born after 1960, this question will be around for many more years. Let's look at some of the things you should consider when trying to decide whether or not you should take early social security.

Early retirement reduces benefits.

Under current law, you can retire at age 62 and start receiving social security benefits. However, you will only receive 70% to 75% of the amount that you would have received if you waited for full retirement. This is a permanent reduction in your benefits. They will not increase when you reach full retirement age.

To determine how much this 25% or 30% figure is, you should look at Social Security form SSA-7005, which is sent to you every year by the Social Security Administration, usually around the month of your birth. This form will tell you what your full benefit amount will be and what the reduced rate will be.

Will you continue to work?

This percentage difference in benefits is just one of the items to take into account when deciding on taking early distributions. Another item to consider is whether or not you will be working. If you still plan on working, your social security benefits for the current year will also be reduced if your wages and/or self-employment income, exceeds a certain dollar amount. For 2006, if your annualized wages and self-employment income exceed $12,480, you will lose $1 in benefits for every $2 in wages or self-employment above the $12,480. So depending on your wages, taking early social security could cost you not only the percentage reduction, but also the benefits you receive for that year.

Will your social security benefits be subject to federal income taxes?

In addition to the possibility of losing part of your social security benefits, some of those benefits could be subject to federal income tax. On a joint return, if your income from all sources, plus half of your social security benefits, exceeds $32,000, than up to 85% of your social security benefits will be taxable. For a single person, the income limit is $25,000.

Life expectancy has an effect on your decision.

On the average, for two people earning the same amount of social security benefits, it will take until they reach age 72 before the total benefits paid to the one who retired at age 65 equals the total benefits paid to the one who retired at age 62. This is an important figure to know. If you have a short life expectancy, then taking early retirement may not be such a costly decision. For those with a family history of long life expectancy, that extra 25% received at full retirement may be the difference between enjoying retirement and just making ends meet.

Will Medicare benefits be an issue for you?

Another factor to consider is Medicare eligibility. Taking social security early does not also entitle you to early Medicare benefits. These benefits do not kick in until you are 65. This may be important if you will be losing any health benefits if you leave your job before full retirement age.

If you die, your surviving spouse will receive either your benefits or his/her benefits, depending on which is larger. So taking reduced benefits now could also affect the amount of benefit that will be paid to your spouse.

Before making the decision to take early benefits, call our office for an appointment. Our office will sit down with you and help you choose the best option for you.