Options for claiming Social Security benefits are as numerous as individual personal financial situations. Explaining all the options is not possible in a single Blog. Today, we look at people who are still earning income, but contemplating filing for Social Security benefits as well.
Simple rules of thumb can assist people in making “now or later” Social Security benefits filing decisions. Certain obscure exceptions exist, but you will not be likely to encounter any that apply to you. Most importantly, filing early results in a permanent reduction of monthly benefits. Filing decisions should be predicated on a participant’s age and financial situation, and with a serious eye to the future.
Full Retirement Age (FRA), also called Normal Retirement Age (NRA), is a moving target, based on year of birth, but every individual only has one. Delayed filing can take place any time after reaching FRA, up to age 70, whereafter no further benefit increase can be realized by further postponements. Early filing is available beginning on an individual’s 62nd birthday, and then may be executed any time up to FRA.
FRA filing means you will receive your original targeted monthly benefit payment for life, along with accumulated Cost-of-Living Adjustments (COLAs). Delayed filing produces a larger monthly benefit for life, up to age 70, at which time the individual’s maximum monthly payment is reached.
Most people have heard that Social Security will reduce monthly payments for people who are working while collecting. This is true, but must be clearly understood. Prior to FRA, Social Security benefits will be reduced by $1 for every $2 or $3 earned over certain thresholds, depending on proximity to FRA. These reduced benefits are not lost, as they are actuarily applied to future benefits. Beginning at FRA, no earnings-based reductions apply.
Annual benefits reductions are applied to payments “up front.” No monthly payment will be received until the entire annual reduction is covered, at which time regular monthly payments complete the year.
As with any complex financial decision, advance planning is critical to an optimal outcome. Unlike most decisions, however, there is one chance to execute a do-over. At any time during the first year of receiving benefits, a participant is allowed to pay back 100% of the money received, cancel the filing completely, and start over with a clean slate. All future benefits will be increased as if a later filing had been chosen.
Van Wie Financial routinely assists clients with Social Security filing decisions as part of their overall financial plan.
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