Q: This will sound pretty basic, but I can't get a confirming answer from the Social Security Administration.
I plan to retire at 63, but I don't intend to draw Social Security until I hit the full retirement age (FRA) of 66. According to my annual Social Security statement, my FRA benefits are based on the assumption that I'll continue working until 66.
In much of the reading I do, I'm led to believe that if I delay taking any Social Security benefit until I'm 66, it will allow my monthly payment to grow to the full FRA amount.
Which statement is correct? Will my benefit amount continue to grow until I reach FRA at 66 as long as I don't touch it, even though I'll no longer be working? --RS via email
A: You'll have to do some numbers-crunching to figure out whether it makes sense for you to postpone drawing a benefit until you're 66.
You're right that if you stop working at 63, the amount you're entitled to receive at FRA is going to be smaller than what's listed on your annual statement. But even so, your benefit will be bigger if you wait until FRA to take it -- because if you take it earlier, it's subject to a discount.
Let's start with getting a better fix on the benefit you can expect at FRA.
As you say, the amount listed on your annual statement is based on the assumption that you'll work until 66, and that you'll earn what you do now.
Anyone who plans to stop working before FRA, or who expects to earn a lot less in the next few years -- perhaps because of a switch from full-time to part-time work, for example -- can check how that change will affect his Social Security benefit by using the agency's Retirement Estimator calculator.
The calculator lets you create 'what if' scenarios, based on your own retirement plans and earnings expectations. It's linked to your actual Social Security earnings record, so you don't have to enter all your years of earnings information. (You do, however, have to enter information like your Social Security number, date of birth, and mother's maiden name.)
Put in new assumptions, and you'll get a new number for the amount you'd be entitled to receive at FRA. You'll also see the discounted amount that you'd receive if you started taking that benefit at 63.
It's a trade-off.
Of course, applying at 63 will give you three years worth of checks you wouldn't otherwise receive. And if you have a spouse and minor children, you should consider any benefit they may be eligible to collect once you've applied for Social Security.
But if you apply at 63, the amount you get will be discounted for age -- and even though your benefit will receive annual inflation adjustments, it will always be smaller amount than if you'd waited until age 66 to apply for it. If you don't apply for Social Security until you're 66, you'll get the full benefit you're entitled to at FRA, without any discount for age.
If you live an average or longer than average life, this difference in monthly benefit can become substantial. (See my earlier post, Does It Really Pay to Postpone Taking Social Security?) Before making a decision, you might want to check out this calculator which helps you estimate how long you'll live, based on your lifestyle and family history.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.(c) Lynn Brenner, All Rights Reserved
I plan to retire at 63, but I don't intend to draw Social Security until I hit the full retirement age (FRA) of 66. According to my annual Social Security statement, my FRA benefits are based on the assumption that I'll continue working until 66.
In much of the reading I do, I'm led to believe that if I delay taking any Social Security benefit until I'm 66, it will allow my monthly payment to grow to the full FRA amount.
Which statement is correct? Will my benefit amount continue to grow until I reach FRA at 66 as long as I don't touch it, even though I'll no longer be working? --RS via email
A: You'll have to do some numbers-crunching to figure out whether it makes sense for you to postpone drawing a benefit until you're 66.
You're right that if you stop working at 63, the amount you're entitled to receive at FRA is going to be smaller than what's listed on your annual statement. But even so, your benefit will be bigger if you wait until FRA to take it -- because if you take it earlier, it's subject to a discount.
Let's start with getting a better fix on the benefit you can expect at FRA.
As you say, the amount listed on your annual statement is based on the assumption that you'll work until 66, and that you'll earn what you do now.
Anyone who plans to stop working before FRA, or who expects to earn a lot less in the next few years -- perhaps because of a switch from full-time to part-time work, for example -- can check how that change will affect his Social Security benefit by using the agency's Retirement Estimator calculator.
The calculator lets you create 'what if' scenarios, based on your own retirement plans and earnings expectations. It's linked to your actual Social Security earnings record, so you don't have to enter all your years of earnings information. (You do, however, have to enter information like your Social Security number, date of birth, and mother's maiden name.)
Put in new assumptions, and you'll get a new number for the amount you'd be entitled to receive at FRA. You'll also see the discounted amount that you'd receive if you started taking that benefit at 63.
It's a trade-off.
Of course, applying at 63 will give you three years worth of checks you wouldn't otherwise receive. And if you have a spouse and minor children, you should consider any benefit they may be eligible to collect once you've applied for Social Security.
But if you apply at 63, the amount you get will be discounted for age -- and even though your benefit will receive annual inflation adjustments, it will always be smaller amount than if you'd waited until age 66 to apply for it. If you don't apply for Social Security until you're 66, you'll get the full benefit you're entitled to at FRA, without any discount for age.
If you live an average or longer than average life, this difference in monthly benefit can become substantial. (See my earlier post, Does It Really Pay to Postpone Taking Social Security?) Before making a decision, you might want to check out this calculator which helps you estimate how long you'll live, based on your lifestyle and family history.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.(c) Lynn Brenner, All Rights Reserved
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