Four Reasons Why Waiting to Take Your Social Security Benefit Pays Off

retired couple with surfboards - social securityTaking Social Security benefits at 62 may seem like a good idea, but if you wait, you'll thank yourself later. Here are four reasons why:

1. You get less money when you claim early

If you take your Social Security at age 62, you take a 25% haircut. Or as Social Security points out here, if you are entitled to a $1,000 at your full retirement age -- 66 for most of us retiring soon -- you 'll get $750.

A spouse claiming on your record gets even less money. At full retirement age, if you get $1,000, your spouse will get $500. Take it early, and your spouse will get $350, just 30% of what he or she would get at your full retirement age.Taking less adds up to big total dollars over time. Use this calculator to figure out various scenarios. If I punch in the one above: A couple both of whom turn 62 this month, here's what they'd make from Social Security if both of them lived to be 100:
  • You retire at 70, spouse at 70 equals $1,094,000 in benefits/gains
  • You retire at 66, spouse at 66 equals $983,000 in benefits/gains
  • You retire at 62, spouse at 62 equals $839,000 in benefits/gains
There is a $255,000 difference between both retiring at 62 and both retiring at 70. Not chicken feed.

2. Social Security Will Protect You From Inflation

Very few private pensions are indexed for inflation, but Social Security is. Considering that inflation will nearly double the cost of most things in 20 years. Try this calculator to see how your retirement income will hold up. If for instance, you are 62, retired and currently living on $56,000 annually, you'll need $102,000 a year to have the same buying power at age 82. But Social Security recipients get a cost of living increase annually based on the inflation rate. That's enough to save many retirees from an all-kibble diet.

3. Working and Taking Social Security can cost you

If you take Social Security at 62 and earn more than $14,160, Social Security will take back $1 for every $2 you over the limit. During the year you reach full retirement age, Social Security will deduct $1 for every $3 you earn that is over the annual earnings limit. Once you reach full retirement age, you aren't subject to the annual earnings limit. You can work and earn as much as you can and still collect Social Security.

4. Quitting Early Shorts the Calculation

The amount of Social Security you receive is calculated based on a complex algorithm that takes your highest 35 years of earnings into account. While you're eligible to collect Social Security after only 10 years -- or 40 quarters -- the amount you'll get increases significantly the more years of income you have. If you've worked for fewer than 35 years, Social Security will factor in zeros until it accounts for 35 years. That's why women who stayed out of the workforce for many years to raise their children are shortchanged. If you have zero years or lots of really low-earning years, working long enough to delete those years from the calculation will raise your benefit significantly.
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