1st Quarter, 2010
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1st Quarter, 2010 |
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Deciding When To Start Receiving Social Security
By David Harlan, CPA, Tax PartnerIt is always a tradeoff. The sooner you begin receiving social security benefits, the longer you may collect. But the longer you wait to start (up to age 70), the larger your monthly benefit will be. The amount of your Social Security benefit will depend on several factors, including your earnings history and when you choose to start your benefits, which you can do at any time after reaching age 62. "Full retirement age" — the age at which your full benefit amount becomes available — used to be age 65. However, as you can see in the accompanying table, the full retirement age is gradually increasing to 67, depending on your year of birth. If you start collecting Social Security before full retirement age, your monthly benefit will be permanently reduced by a fraction of a percent for each month before your full retirement age. But for each month you delay receipt beyond your full retirement age (up to age 70), your benefit will increase. For example, if you were born in 1943 or later, the increase is 8% per year. Breaking Even Are you better off starting sooner and taking a lower monthly benefit or delaying your start date and receiving a higher benefit? It may help to look at your break-even age to find out how long it would take to make up the money you would lose by waiting. You can use Social Security’s online calculator to determine your break-even age. It’s available on the Social Security Administration’s website, www.ssa.gov. After you know your break-even age, you will want to think about your overall health, your family’s history of longevity, and your personal financial situation before you make a decision. Starting Early Some individuals choose to take their benefits as early as possible because they need the income for living expenses. Others, however, plan to invest the benefits until they need retirement income. The success of that strategy depends on being able to earn more, on an after-inflation-adjusted basis, than the reduction in benefit for commencing early. If you decide to start receiving benefits before your full retirement age, be careful of the earnings limitation. In 2009, the Social Security benefits of individuals below full retirement age are reduced $1 for each $2 above $14,160 earned by working, including self-employment. Spousal Benefits Your spouse may receive Social Security benefits based on his or her own earnings record any time after age 62, with a reduced amount if the benefits start before full retirement age. Or, if more advantageous, your spouse may choose to receive benefits based on your earnings record, provided you have started taking your own benefits. The spousal benefit would be half of your benefit unless your spouse begins collecting benefits before full retirement age. In that case, the spousal benefit is permanently reduced. (You also have the option of receiving spousal benefits based on your spouse’s earnings record, subject to the same rules.) One Piece of the Puzzle Choosing the best time to begin receiving your Social Security benefits is just one of the important financial decisions you will need to make before retirement. Looking at your whole financial picture before you retire and putting together a personal plan based on your circumstances and needs may help.
Other articles in this newsletter:
A Resolution Revolution Reimbursing Employee Travel and Entertainment Expenses |
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David has provided both public and private companies of all sizes with tax consulting and compliance services for over 16 years. His extensive experience with transactions includes assisting clients who are considering going public with tax accruals for IPOs. He consults on tax structuring for mergers and acquisitions, addressing issues such as tax attributes and the acquisition of stock versus assets. David also concentrates on partnership formations, due diligence services, and consolidations. In addition, he is experienced with change of ownership (Section No. 382), current and deferred taxes (FAS 109), cost segregation studies, transfer pricing, stock basis, entity classification, related party transactions, and cross border transactions.