You can easily determine your full retirement age. After that determination, there are several questions to ask yourself to obtain the maximum Social Security benefit.
Every worker makes contributions into Social Security. The more you earn, the more you pay. The percentage of your gross wages that goes to Federal Insurance Contribution Act (FICA) is 6.2 percent.
Thank your employer for also making a 6.2 percent contribution (tax). For the record, self-employed individuals pay both the personal and employer contribution (12.4%).
Eventually, every worker will need to decide when to start taking Social Security benefits. It will be at age 62 or 67 or 70 or somewhere in between. There is a lifetime penalty for early withdrawal and a lifetime benefit for late withdrawal - up to age 70.
There are incremental full retirement age increases if you were born between 1938 to 1943 and between 1955 to 1959.
Full retirement age is gradually increasing and will continue to do so as life expectancy increases.
Those who were born before 1937 and started to receive their Social Security benefits at age 62 were penalized 20 percent. Those born between 1943 and 1954 were penalized 25 percent. Those born after 1960 are penalized 30 percent by starting to receive benefits at age 62.
By delaying benefits a year or two or more, up to age 70, will increase your lifetime benefit. For example, if you were born in 1943, each year that you delay taking your Social Security will result in an 8 percent increase in benefits. There is no advantage in delaying the taking of benefits after age 70.
Tip: If the odds are that you will live to age 78 or more, your Social Security benefits will be greater over your lifetime by delaying benefits to age 66 or 67. If you think you'll live to be 83 wait until age 70 to maximize your benefits.
Everyone's personal circumstances are just that - personal. There are several questions that you can ask yourself to help in making the decision when to start taking your Social Security benefits.
Approximately 44 percent of workers start taking Social Security benefits at age 62. They choose not to wait for until their full retirement age. Is that because they need the cash or do you think it is related to the questions above?
The answer will depend on what your taxable income is each year. Remember, withdrawals from an IRA may be taxable income. The threshold for benefits to be taxed is $25,000 for an individual and $32,000 for a couple filing a joint return.
So, you may not be taxed on your Social Security benefits or as much as 85 percent of your benefits may be taxed. It will depend on your taxable income for that year. It is another "sliding" government scale.
The Social Security Board of Trustees' annual report expects funds to be exhausted in 2033. The trustees' proposed solution to that problem is to increase payroll taxes by 1.3 percent and to reduce benefits by 16.2 percent. That would eliminate any present shortfall and insure benefits for the next 75 years.
Return to top of Full Retirement Age