Social Security provides multiple benefits to individual taxpayers during various stages of their lives. This means that benefits can be collected in cases of disability and retirement. However, there are many benefits to waiting before you chose to apply and collect your benefits. Still, when you are getting ready to retire, you need to make plans regarding what age you want to retire at to determine the amount of monthly benefits you can receive. Working with a tax professional or accountant, such as 1-2-3 Financial Services in Warwick, RI,. you can determine when the best time for you to apply for your benefits. Still, there are many reasons why it might be the best course, even if it is earlier than you expected.
Reasons to Apply Early for Social Security
For those who have had a life changing experience, applying for social security early might just be what they need to do. Here are a few of those life events:
Job loss – Losing your job so close to retirement may make it difficult to find another one. Applying for your Social Security benefits might be the best way to pay your monthly expenses.
Serious Illness – If a serious illness strikes, then an individual might find themselves unable to work and with a much shorter life expectancy. Therefore, it might be the time to take your benefits. Keep in mind, however, that the highest earner in a married couple should hold off as long as possible, to increase the benefits of the surviving spouse in the future.
Lack of Retirement Savings – Many individuals struggle to care for the expenses of life and often have little set aside for retirement. Therefore, when it comes time, they choose to claim their benefits because of a lack of income from other sources.
Pros and Cons of Collecting Your Benefits
While it might seem to fit the current financial situation to take your Social Security benefits, there might be more reasons not to take your benefits right away. The first reason is simply the benefits themselves. The earlier you take your benefits, the smaller the benefits will be. Then over time, since cost of living increases are based on a percentage of your current benefits, you will have less of a cost of living increase. The longer you wait, however, the higher your benefits will be when you do apply for them. Therefore, your cost of living increases will also be higher. However, once you turn 70, you will receive the maximum benefit available.
It has been estimated that those who choose to take their benefits early will see a reduction of about 25%. However, the benefits at taken at 70 are typically 76% higher. If the fear is dying without taking benefits, the larger concern should be living for a long time with no real funds.
Additionally, if you and your spouse both wait longer, then if one of you passes away, the survivor benefits will be higher for the surviving spouse. However, you need to keep in mind that if you must take your Social Security benefits, it might be best to take the benefits for the lower income spouse, allowing the other higher earning spouse to wait.
Often, when calling the Social Security Administration, it can be hard to get complex questions answered, particularly about taking your benefits sooner. Therefore, it is important to consider to engaging professional help to go through your financial situation. Mistakes in filing can often mean a reduction of your benefits that does nothing but leave funds on the table.
Will you keep working? If so, those earnings will reduce your Social Security benefits until you reach full retirement age. After reaching your full retirement age, any earnings tests will no longer apply. But in the meantime, Social Security will withhold $1 worth of benefits for every $2 in wages that you during the period from the time you turn 62 until you reach full retirement age. Keep in mind that retirement savings and investments typically do not count against the earnings test.
If you have retirement funds available or other options, it might be worth considering holding off on applying for your Social Security benefits. The long-term benefits of waiting to collect your benefits might be worth the effort!
Click here to connect with a tax professional or accountant at 1-2-3 Financial Services in Warwick, RI, who can walk you through the pros and cons of applying for your Social Security benefits at 62 or earlier based on your unique circumstances.
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