Social Security – Don’t Start Early

Don’t start collecting early because Social Security has money problems

Yes, Social Security has money problems. After benefit payments deplete the program’s Trust Fund, in about 2037, Social Security will only be able to pay about 78¢ on the dollar.

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The most prominent proposals to cut benefits:

Raise the Full Retirement Age – So those affected would need to claim later, and collect for a shorter period of time, to get the same monthly benefit.

Freeze the purchasing power of monthly benefits at current levels – So if wages continue to rise, Social Security would replace a smaller share of the earnings of those affected.

Cut the benefits of high earners – But protect the benefits of low earners.

None of these proposals give you more if you claim early. If you are affected, you’ll get less no matter when you claim.

*Nearly all proposals to fix Social Security would also protect those age 55 and older.

© 2009, by Trustees of Boston College, Center for Retirement Research


Does not represent the Social Security Administration.

Social Security – Working after you Claim

You can continue to work after you claim

However, Social Security is designed to replace your earnings when you no longer work. So if you start to collect benefits and continue work before you reach your Full Retirement Age, some of your benefits might be withheld.

Before the Full Retirement Age, Social Security withholds…

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Benefits withheld aren’t lost

They’re rolled forward to increase your Social Security monthly benefits after you reach the Full Retirement Age.

For example, say you start to collect benefits at 62, continue to work, and only retire for good at 63. If you earn so much that half your monthly benefits are withheld, at the Full Retirement Age your monthly benefit is raised to what it would be had you started to collect at 62 and a half.

© 2009, by Trustees of Boston College, Center for Retirement Research


Does not represent the Social Security Administration.

Social Security – Claim Later Get More

The later you claim, the more you get.

The monthly benefit you earn as a worker is generally based on when you start to collect and the average of the highest 35 years of earnings on which you’ve paid Social Security payroll tax.

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75% of original income is need to keep your standard of living.

*As the Full Retirement Age rises to 67, benefits claimed at any age will replace a smaller share of earnings.

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You get even more…

…if working longer raises the average of the highest 35 years of earnings on which you’ve paid Social Security payroll tax. For example, say you were 62 in 2005 and had 31 years of employment, at $40,000 a year.

If you retire and start to collect benefits at 62:

The average of your highest 35 years of earnings = $35,400

your monthly benefit, based on your average earnings and claiming age = $1,030

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If you work four more years, at $40,000 a year, and retire at 66:

The average of your highest 35 years of earnings = $40,000

your monthly benefit, based on your average earnings and claiming age = $1,500

33% for claiming later + 12% more for more earnings = 45% more overall

 

© 2009, by Trustees of Boston College, Center for Retirement Research


Does not represent the Social Security Administration.

Social Security – How much secure income will you need?

Social Security is especially good for providing a basic retirement income that you and your spouse can rely on. The income it provides is inflation – proof and keeps coming as long as you or your spouse is alive.

Your chances for a very long life are excellent
Chances that one person in a married couple, both age 62, will live…

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Inflation-Proof!
You get more dollars from Social Security if prices rise, so what you can buys stays the same.

Employer pensions and private annuities
provide a guaranteed income for the rest of your life.
But they are rarely inflation-proof. If prices rise 3% a year, in 20 years they’ll buy barely half what they do today.

401(k)s, Individual Retirement Accounts (IRA)s, and other savings can be invested in stocks that could produce high returns, saved for rainy days, or passed on to your children.
But high returns bring increased risk, and financial shocks are likely over the course of your retirement. On the other hand, cash in the bank is not inflation-proof.

Work is an important source of income for some retirees.
But few people work past 70. So relying too much on earnings could be a big mistake.

*Social Security will likely be much more important as you age, as other sources of income often dry up.

© 2009, by Trustees of Boston College, Center for Retirement Research