Current Perceptions can hurt
Currently, there is a lot of debate on whether the Social Security system has any long term viability at this point. There is really no solid proof one way or the other as to the fate of the Social Security system. The perception, however, causes people to either neglect learning about or managing their Social Security benefits. The idea that the end is nigh has prompted some to file for benefits early to get whatever they can before it all crashes and burns. Taking benefits early can backfire, especially if the retiree in question lives longer than expected and therefore could decrease survivor benefits.
Defining Early
One of the key pieces of information a person needs in deciding when to take their Social Security benefits is knowing what their “Normal Retirement Age” (NRA) is. According to the Social Security Administration, if a person was born in 1937 or earlier the NRA is 65. Anyone born in 1970 or later has a NRA of 67. Persons born between 1937 and 1970 have an NRA of 66. Delaying taking benefits until retirement age or later could result in significant increases in monthly income for the retiree and any survivors.
How the NRA Affects Benefits
There is a rather complicated formula used to assess the effects of the timing of initiating Social Security benefits. A retiree that takes benefits before their NRA, the benefit amount is reduced by 59ths of a percent, per month, for up to 36 months. For example, a person accepting benefits 9 months prior to normal retirement age would lose 5 percent of their Social Security benefit. Conversely, if a person waits until after their NRA an increased benefit is paid. For instance, a delay of just over 4 years nets an increase of 131 percent in the benefits they’ll receive.
The Economy is a Factor
Inflation is almost nil in the current economy. That said, inflation is due to take place in the future. Higher inflation has an impact on deciding when to take Social Security benefits. High inflation means higher cost of living allowances. Delaying taking benefits during times of high inflation can significantly increase the eventual benefit payout.
Retirement Income Thresholds have changed
A lot of people look forward to not working when they retire. Days of leisure and travel are what most people envision for this time in their lives. In reality, many retirees have to work or find new careers after retiring. It is important to note that how much you earn during this time affects benefits. With a NRA prior to 2009 benefits were reduced by $1 for every $2 earned beyond $14,160 per year. NRAs of 2009 or later let a person earn up to $37,680 with a reduction of only $1 for every $3 earned above that. This is a significant benefit for working retirees. Health and viable career alternatives are important factors in deciding when to take Social Security benefits.
