by: Ken Morris
When people plan and invest for retirement, the decision of when to begin taking Social Security benefits eventually comes up.
Social Security is an important source of retirement income for many individuals and, therefore, the decision of when to take these benefits can make a big impact on retirement income.
A retired worker who is fully insured can elect to start receiving benefits at any time between age 62 and 65 (or even later).
Benefits can start as early as 62, but if you so elect they are permanently reduced by 20%.
Here is where the question arises.
Is it better to start taking checks at a reduced amount or wait until Normal Retirement Age and receive full benefits?
Before addressing the inherent problems with this empirical question, let's look at some of the factors and considerations.
The early bird who decides to get the worm first gets three years' worth of checks -36 payments- that the sleeping bird will never see.
Thus, it will take some time for the total benefits of the person who waits until age 65 to catch up to those of the early collector.
Further, for those born after 1937, Normal Retirement Age is being extended.
Normal Retirement Age is currently age 65, yet due to the Social Security amendments, full benefit age will be raised gradually in two stages until eventually reaching 67 in 2027.
Thus, the early bird will receive even more checks than the retiree who bides his time for full benefits.
If the early bird also did not need the benefit income and chose to invest instead of spending the checks, the investment income would partially offset the reduced yearly benefit as well as extend the catch-up period for the age 65 collector.
Sounds like most people would opt to be an early bird.
There are other factors to consider (as always).
Working an extra three years will probably increase the patient retiree's benefits.
This is so because more earnings will be credited toward the Social Security account.
Chances are that old low-earning years will be replaced in the benefit equation with a current high credit year.
These higher benefits will then shrink the catch-up period.
Delaying retirement benefits beyond 65 until age 70 will also increase the size of the benefit due to a credit provided by the Social Security Administration for such patience.
Further, for those born after 1937 who choose to begin receiving benefits at age 62, the reduction-in-benefits penalty is further stiffened from 20% to an eventual 30% in 2022.
The hare will feel the tortoise closing even quicker.
Taxation of benefits may also enter the picture.
Poor timing of Social Security and other income may result in a good portion of early benefits being subject to inclusion in income and painfully taxed.
On the other hand, a lower age 62 benefit may mean that the taxpayer will not meet the "combined income" threshold for benefits inclusion.
Empirical studies have been done which generally arrive at the same conclusion.
Early bird collectors are ahead of the game for about 12 to 15 years and then are left behind the higher benefit collector.
Thus, where a person is in good health and foresees another 10 + years of retirement life, it is probably better to defer taking benefits until normal retirement age.
Of course, a universal rule for when to take benefits is impractical.
Depending upon an individual's circumstances, it might make more sense to begin taking benefits as soon as possible regardless of the net economic benefit in the future.
This brief article is no substitute for a careful consideration of your unique personal situation.
Before making any significant retirement planning or tax strategy, consult your financial planner, attorney or tax advisor, as appropriate.
About The Author
Ken Morris, a fee based Investment Advisor Representative with Raymond James Financial Services, Inc., helps 401k participants get the most out of their corporate plans.
lindsay.brickner@raymondjames.com
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Plan To Succeed In Your Business
Plan To Succeed In Your Business
by: Jennifer Givler
We?ve all heard the saying: If you fail to plan, you plan to fail. But I like to think of it another way. Ask yourself, ?am I planning to succeed??
In business, it?s important to follow a plan. It?s important to have a plan for your year, each week, and each day. Otherwise, you?re being reactive in your business instead of being proactive. When you?re proactive, you control your business ? it doesn?t control you.
Here are three easy-to-follow tips to creating and following a successful plan:
1. Start with the end in mind. Set a deadline for your goal. Write the completion of your goal on the deadline date in your calendar. Then, work backward by putting tasks in your calendar each day or each week. For example, if you want to send out a mailing this spring, choose the date that you want the mailing to go out. Then, work backward to create a to-do list each week. If you wanted to...
Plan To Succeed In Your Business
Financial planning > Plan To Succeed In Your Business
Saving Money For College? Key Strategies
Saving Money For College? Key Strategies
by: Adwina Jackson
One day you will wake up and your children will be ?grown? and heading off to school.
Have you thought about how you will finance their education?
If you haven?t heard already, the cost of a decent education is continually rising above and beyond what ordinary people can afford.
If you have more than one child, you can expect a financial burden that might almost seem overwhelming.
Did you know that within the next 10 years, the cost of an average education for a bachelor degree is expected to rise to $200,000 per year?
Fortunately there is good news for parents of children that expect to attend college one day.
There are several key strategies you can adopt to ensure that you save enough money for your child or children?s education.
Many smart parents know exactly what it takes to afford an education. Here are their strategies:
Start Saving...
Saving Money For College? Key Strategies
Financial planning > Saving Money For College? Key Strategies
Does The Early Bird Get The Worm?
Does The Early Bird Get The Worm? Financial planning
Does The Early Bird Get The Worm?
Fundraiser Gifts
Fundraiser Gifts
by: Andy Henry
Fundraiser Gifts
Fundraisers are a part of life and way for groups and companies to give back to the community. You can give back, too, by doing your part and helping with fundraising events, donating your time, energy, gifts and / or funds to the fundraisers to help raise awareness of the groups? activities and support.
Donating funds to charity is a chance to put your money where your mouth is. Actions...
Financial planning > Fundraiser Gifts
Hawaii Vacations: 9 Great Places to Eat
Hawaii Vacations: 9 Great Places to Eat
by: Donna Monday
There are many great restaurants and eating establishments in Hawaii. Here?s a small sample of places to enjoy a good meal.
Kilauea Lodge & Restaurant ? This is a bed and breakfast inn located in Volcano National Park. Meals span from traditional American/European to wild game. They have a good wine selection. The atmosphere is a mixture of contemporary and traditional. Brunch is for overnight guests....
Does The Early Bird Get The Worm? Hawaii Vacations: 9 Great Places to Eat
Financial planning > Hawaii Vacations: 9 Great Places to Eat
Does The Early Bird Get The Worm? tvs Financial planning
Discount Travel - The Idea Of Staying Put
Discount Travel - The Idea Of Staying Put
by: Brandon C. Hall
Due to the high costs involved, most people don't travel nearly as much as they would like too. Unless you are well off, chances are that traveling is something you only do a handful of times in your life, and there is therefore a tendency to try and get as much out of the experience as possible. There is, of course, nothing wrong with this idea, but a slight shift in your priorities can save you a...
Does The Early Bird Get The Worm?
Financial planning > Discount Travel - The Idea Of Staying Put