I am 61 and I’d like to retire and begin taking Social Security benefits next year. But I’m not sure if I should take early retirement benefits or wait until full retirement age. I want to consider the aspects of taking benefits now versus waiting. What should I be aware of that will help me decide? – Jim
There are several factors to take into consideration before making this important decision. This is a personal decision; what’s right for one person may not be right for another. It’s good to settle on a decision that’s best for you.
Let’s look at some factors as you consider which option to take.
1) Your health and family history
Do you have excellent health and expect to continue with relatively good health? Or do you feel as though your poor health is getting in the way of optimal work performance?
Do you have considerable stress in your job? Stress-induced health problems can affect one’s decision to stop working and have a more leisurely pace.
Working too many years in an overly stressful job can limit your life span. (Source: actuarial study of “Longevity vs. Retirement Age” by Dr. Ephrem Cheng). If you are feeling the consequences of stress-related work, you might consider opting for early benefits.
Consider your family history and life expectancy. Did your parents and grandparents live into their 80s and 90s? Were they productive citizens with few health concerns during those years? If you also expect to live longer than average, you may want to delay retirement.
2) Your work plans
If you’re considering taking early benefits, do you intend to continue working? This would be a mistake, according to Pennsylvania Institute of Certified Public Accountants (PICPA). Why? There is an “earnings cap” penalty when Social Security payments are made before one’s full retirement age. When you collect benefits early, between age 62 and your full retirement age, and your job brings in more than the cap, you’d lose $1 in benefits for every $2 earned over the annual limit.
Beginning with the month of your full retirement, you’re eligible to get your benefits without a limit on your earnings, according to The Wall Street Journal. But also be aware that this is in reference to penalties tied to earnings. “Any work you do is also subject to income tax, and could cause your Social Security benefits to be subject to tax, as well” WSJ.
In retirement, tax rates can vary. However, retirees that have money in tax-free Roth accounts, tax-deferred 401(k) and IRAs can plan for the optimal time to withdraw their funds.
Source: Crosswalk | Deborah Nayrocker, Crosswalk.com Contributing Writer