This was the topic at my last book club meeting. We have been together since some of our kids were in 2nd grade. We got a chuckle about how our conversations have changed over the years.
"A quick search turned up that there are income limits for below your FRA and higher limits for between your FRA an age 70. ".
As far as them taking back part of the SS, there are no limits to earned income once you reach FRA . There are fairly low earned income limits from 62 till the year before you reach FRA, a much higher limit the year you reach FRA, none after
There are no limits to income after one year past FRA that would impact the size of the payment that SS sends, but there are tax issues that also come into play. So higher earners could pay tax on up to 85% of their benefits.
Under current law the highest tax bracket is 37%, so in top income brackets, more than 31% of the benefit could be going back in the form of taxes.
But at that income level, the social security check is pocket change. I posted above that for the wealthy, it can make sense to take the benefits early on, because when they are a sure thing, rather than deferring, given that the rich aren’t working about running out of money in their 90’s.
The more significant tax problem would be for people with an earned income stream that puts them in a 22 or 24 percent bracket, assuming that there is a time in the foreseeable future when that income is
expected to go down… presumably, post-retirement. So that currently would be single taxpayers with taxable incomes over $38K. (double that for joint filers). At a 22% marginal rate, that means that almost 19 percent of the social security is paid back in taxes.
So as an example if one year the person is going to have income that puts them in a 22% tax bracket, with 85% of their benefit being taxed, but they know that 2 years down the line their tax bracket will drop to 12%, with only 50% of their benefit being taxable…then that’s one more reason to defer.
As I said above, there is no “one size fits all” answer – even the very astute observations by @calmom above. I’m pretty sure of my income stream [state pension], but it does not mean I’m not worried about running out of money down the road, since the COLA increases are never as much as the actual increase in costs or property taxes [which I can no longer fully deduct thanks to the current administration, but let’s not go there].
I did a quick run on my numbers this afternoon. This falls in the category of “good enough for government work” and is not meant to be definitive, but here is my thinking.
If I defer until 70, I have to live to 73 to recoup what I would have received had I taken benefits at 67 [ignoring taxes and earned interest just to keep it simple], 72 to recoup what I would have received had I taken benefits at 68, and 71 to recoup what I would have received had I taken benefits at 69. I expect that those basic numbers work no matter what your estimated payments might be. SSA estimates my life expectancy at 85. If I defer until 70, I will receive $1,000 a month over the payment at 67, $750 over the amount at 68, and $500 over the amount at 69. I like the odds and the payout.
Of course, this all assumes that the system remains viable and benefits are not cut and so forth and so on … so I can see the appeal of getting what you can while the getting is good.
Not a high earner here, although I’ve worked full time since graduating college.
My estimated SS benefit is…discouraging. I just don’t know what ordinary people do to keep themselves sheltered, and fed, and with health insurance in their old age.
@Midwest67, I think some end up living with others—their kids or grandkids. There are many examples of this in HI, due to our very high real estate prices.
@Midwest67 Social Security assumes that you have other retirement savings, unfortunately. It’s just not enough to live on. What my mother gets couldn’t even pay rent for a studio. Sad.
If SS was going to be a bigger payout, it would require much larger contributions from the people who would be receiving it. As it is, there are many who receive much more than they pay in. The sad thing is that people are not saving enough for their old age and ooor health, for many, many reasons, including low wages and poor health.
The last time this question was a topic, one CC poster said to think of SS as insurance. If one does not need it at 62 or 66 then hold off until 70. I am going to do that. Mom lived to 100 and Dad is 93.
Yes, I plan to hold off, as it won’t really be very large for me anyway and my folks are still fairly healthy at 89/93. My great uncle died at 107!
I will definitely wait until FRA, but may play it by ear going forward. As long as I can keep working and my income remains steady, no particular problem … but one nice thing about hitting that FRA point will be that I won’t have to worry about a health or work-related setback. I can simply apply for the full benefit amount whenever I feel ready.
I’ve found Soc Sec more complicated than anticipated. Because of my limited income history & genetic longevity (my mother & her older brother are both age 100+, other 5 siblings in their 90s) the plan is to maximize spousal benefit.
Last time I ran maxifi software, which included retirement savings, the plan was H waits to age 70 & I start at age 66, which is both our full retirement age.
Now, I believe we need to take into consideration how that plan will affect our tax liability during those years between age 66 & 70. And, whether it would be advantageous to begin my personal SS benefit earlier, which another SS software program recommended.
I hope Medicare decisions are less complicated!
You might also consider whether doing IRA conversions to a Roth would be beneficial before 70.
@bluebayou - thanks for suggestion … will add that recommendation as another variable to include
Husband and I decided to defer, for now, our SS until age 70. He is 65, I am 63 and we both are retired, have modest pensions and do a tad of consulting work. We’re ramping down on the consulting and thinking now about our tax liability going forward. We’re going to start to draw from our 401Ks to supplement our annual income while it is lower before we start to draw SS. Our SS might end up being our long term care payments, or at least part of it, so waiting might be the wise thing us anyway. But like other posters, we’re watching to see what Congress does or does not do with SS and Medicare benefits. We were not helped with the new tax plan but happy for others.
Given your ages, I’d bet big cyber money that there is almost zero chance that Congress will make a change to SS or Medicare that will affect you. Not trying to be political, but just to suggest that you might be safe to make your decisions based on the plans as they are today.
Has anybody thought about taking SS at 62 while still employed full time and at the same time maxing out your 401k and possibly contributing to a Roth and using the SS payments to live on? I have toyed with this idea and also with the idea of taking a pension from a prior job that I have been allowing to grow and using that money to allow me to grow my retirement account. The total income would be about the same so any tax consequence should be reduced. I just don’t know if it’s better to let them grow (the pension grows 8 1/2% from age 55 to 65, when it stops growing) or use them earlier. If I don’t do this, I will take the pension at 65 and max out my retirement benefits for at least a year. I am planning to work till at least 66 since my youngest child can be on my health insurance till then. I would wait till FRA (66 and 10 months) or age 70 for SS. Right now, I can manage with H not taking SS (he’s almost 63). Right now, I am not maxing out my 401k because I just can’t. I recently went up to 10% but am going back down temporarily because I have to find $13K for property taxes within a month.
If you take SS at 62 before FRA and are still earning, then I think you are paying back 50% of every dollar you earn above $17,000. I haven’t done the math, but I don’t see how that works to your benefit in most cases.
The value of SS over your Roth or 401K is that it is a defined benefit system. So if you max out your 401K and then there’s a market downturn at the time when you need the money… you have whatever is left in your 401K, not necessarily what you put in. Especially as you are older, the dollars you contribute to the 401K or Roth aren’t going to have the time for growth, and so are more susceptible to market downturns.
https://www.ssa.gov/planners/retire/whileworking.html
The situation is more complex for a married couple, because of course one spouse can take their benefit earlier while the higher-earning spouse continues to work to max out the retirement benefits — so it’s a math problem – but the point is that dollars put into a Roth or 401K late in the game aren’t guaranteed to increase. So at least in theory, I would not think it a good idea to opt for reduced long-term defined benefit in order to shift funds into a personal retirement account.
How much will you earn while working? As noted, if it’s above a certain threshold, you will not be able to collect and keep your full age 62 benefit as you will have to repay over a certain amount.
I took SS at age 62. My reasons are upthread someplace. Let’s just say… my benefit is subject to the windfall and offset provisions so my SS earned benefit is reduced by 2/3. Plus 8 worked most of my career in a state where teachers do not contribute to SS. My benefit would have been about $435. It was reduced to $2010 a year.
I know this because one year, I worked and earned in excess of whatever the amount was. I had to pay back every penny of that $2010.
So…check first to see what you would actually net…it might not be worth it to take a reduced benefit.
The calculators still recommend that we wait until age 70, but my wife and I are just of that age that still allows me to file a “restricted application” so that is what I will do when I turn 66. Wife will file for her benefit and I will get a spousal benefit while she gets her full retirement benefit.Then if I make it to age 70 I will apply for my own higher benefit. At that point, wife’s benefit will probably still be higher than her spouse benefit. The “file and suspend” strategy is no longer allowed, but this is the next best thing. Calculators still say it is better for both of us to wait, but the difference isn’t enough to make me wait 4 years.