Think you're ready for Social Security? Not until you read this

One of the wonderful things about the Social Security retirement benefit is that you can pick an age between 62 and 70 that makes sense for you to start taking your benefit. And while the size of your monthly check will be lower the earlier you take it, the total dollars the average person will collect work out to be about the same.

But at the same time, there are a lot of other factors that come into play, including whether you plan to keep working, how much you have in other retirement assets, your health and family medical history, as well as considerations for your spouse. So even if you think you're ready for Social Security, keep reading; you may not be as ready as you think.

How long you're likely to live could play a role

Millions of Americans will take Social Security at age 62, the soonest they are eligible, with the (often false) conclusion that you'll get more money by claiming as early as possible. The fact is, Social Security is structured so that someone living the average life expectancy would receive roughly the same total dollars, whatever age they first start taking benefits.

But if your health and family history of longevity make it likely you'll live either much shorter or longer than average, you may be better off claiming benefits at a specific age. Here's a table that shows how it breaks down:

Ss Retirement Benefits Paid Out By Age Based On Claiming Age Vertical
Data source: Social Security Administration. Table: Author. Based on $1,000 monthly benefit at age 66.

As you can see, there's not a huge difference in how much money you'd get no matter what age you file if you live to around 81 or 82, the average for someone who lives to age 62.

But if you're not likely to live past your mid-70s, it's almost certainly in your best interest to file for Social Security as early as you can, as the table above shows pretty clearly. On the other hand, if you are in good health and come from a family that tends to live late into their 80s or even 90s, you'd end up getting more money by putting off Social Security closer to age 70.

10 Social Security rules everyone should know
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10 Social Security rules everyone should know

6.2 percent payroll tax

Most workers pay 6.2 percent of their earnings into the Social Security system, and employers match this amount. Self-employed workers contribute 12.4 percent of their income to Social Security. You can see how much you have paid in and check that your earnings have been recorded correctly with a my Social Security account.

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$127,200 tax cap

This is the Social Security maximum taxable amount of earnings in 2017. Earnings above the tax cap aren’t taxed by Social Security or used to calculate retirement benefits. Workers who earn more than $127,200 in 2017 will notice a bump in their paycheck when Social Security taxes stop being withheld.

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35 years of earnings

Your Social Security payments are calculated using the 35 years in which you earn the most. If you don’t work for at least 35 years, zeros are averaged in and will reduce your retirement payments. Working for more than 35 years can improve your payments because your lowest earning years could be dropped from the calculation.

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$1,360 average payment

Retired workers will receive an average Social Security payment of $1,360 per month in 2017. Retired couples bring in an average of $2,260 monthly. Payments are adjusted each year to keep up with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. Cost-of-living adjustments have ranged from zero in 2010, 2011 and 2016 to 14.3 percent in 1980.

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Initial eligibility at age 62

Workers first become eligible to start retirement benefits at age 62. However, monthly payments are reduced by 25 or 30 percent if you claim them at this age, depending on your birth year. For example, a baby boomer who qualifies for $1,000 per month from Social Security at age 66 would get a reduced payment of $750 per month if he elects to sign up for Social Security at age 62.

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The baby boomer full retirement age is 66.

People born between 1943 and 1954 are eligible to claim unreduced Social Security benefits at age 66. The full retirement age then gradually increases from 66 and two months for people born in 1955 to 66 and 10 months for those with a birth year of 1959.

The full retirement age will increase to 67.

People born in 1960 or later become eligible for the full retirement benefit they have earned at age 67. Millennials and members of generation X need to wait a year longer than the baby boomers and two years longer than their grandparents to claim their full retirement benefit.

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Maximize your monthly payments at age 70.

Social Security payments increase each month you delay starting your payments up until age 70. After age 70 there is typically no additional benefit to waiting to sign up for your benefit. Retirees can boost their monthly payments by 24 to 32 percent, depending on their birth year, by claiming Social Security at age 70.

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$16,920 earnings limit

If you work and collect Social Security at the same time at age 65 or younger, part of your Social Security payments could be temporally withheld if you earn more than $16,920 in 2017. Beneficiaries who exceed the earnings limit will have $1 in benefits withheld for every $2 in income above the limit. Those who turn 66 in 2017 have a higher earnings limit of $44,880, and the penalty declines to $1 withheld for every $3 in excess of the earnings limit. However, once you turn 66, there’s no benefit reduction for working and claiming benefits at the same time, and your payments will be increased to give you credit for payments that were withheld in the past.

$25,000 in retirement income

If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits exceeds $25,000 ($32,000 for couples), half of your Social Security benefit becomes subject to income tax. And if these income sources top $34,000 ($44,000 for couples), income tax could be due on 85 percent of your Social Security payments.

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How much can you count on from other retirement assets?

This includes defined benefit plans, such as pensions, as well as retirement accounts, savings, and even home equity. For instance, the Employee Benefits Research Institute estimates that the average consistent 401(k) contributor in their 60s had $209,000 saved in 2014. Based on the 4% withdrawal rule -- which should allow for around 30 years of steady income -- that's about $8,380 per year. When it comes to IRAs, the EBRI says the median IRA account owner aged 60-64 had $175,418. That's good for $7,000 per year.

Senior Retiree Piggy Bank Nest Egg
Will your nest egg be enough to pick up where Social Security leaves off? Image source: Getty Images.

Other assets, including savings and home equity, are also important sources of cash for retirees, particularly later in life when other retirement assets are depleted, and healthcare costs tend to increase. If you don't have other financial assets to help cover these costs, delaying Social Security and building up a bigger buffer may be necessary.

Whether you will keep working or not could affect your benefit in two ways

First, if you claim Social Security before your Full Retirement Age (FRA), you may not get your full benefit, even at the reduced level, if your income is above a certain threshold. In 2017, every $2 you earn above $16,920 will cost you $1 in Social Security payments, until you reach your FRA.

Second, if you're still in your prime earning years, your total benefit could be higher if you delay filing, since your benefit is partly based on how much you made in your highest earning years during your working life.

So if you intend to continue working after filing for Social Security, make sure you understand how your earnings will affect your benefit, both now and in the future.

8 mistakes that can sabotage your retirement
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8 mistakes that can sabotage your retirement

Mistake 1: Failing to plan for medical expenses

Medicare kicks in at age 65, but that’s not the end of your medical expenses. Fidelity Benefits Consulting estimates a 65-year-old couple who retired in 2014 will need $220,000 of their own money for medical expenses over the course of retirement. Such costs include deductibles for Medicare Part A and Part B (in-patient and out-patient insurance), and premiums and out-of-pocket costs for Medicare Part D prescription drug coverage.

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Take action:

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Mistake 2: Underestimating costs

Retirement costs can be surprising — surprisingly high, that is. You may find that to manage costs, you need to earn some extra income — not the end of the world, but possibly not what you had in mind. If you do take this path, check the Social Security Administration’s rules for working while receiving Social Security benefits.

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Take action: The good news is, in the emerging economy, it should be easier to find money-making opportunities that fit a retirement lifestyle: There are lots of jobs you can do from home, and lots of ways to earn a little money on the side. If you’re lucky, it may be something you love to do as a hobby — say gardening, tending pets, caring for children or working as a handyman. If you’re in the market for a new job, brush up your resume and skills. Check out “7 Tips to Find a Job in Retirement.”

Mistake 3: Celebrating retiring with a big purchase

No doubt you’ve got a wish list for retirement. But hold off on making major purchases at first. Instead, give retirement a spin and see what you’re spending each month.

Track expenses — every single one. A year’s tracking gives the best picture because it includes one-time and seasonal expenses.

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Take action: It doesn’t matter what tracking system you use. Just find one you like and keep it up. Keep receipts, watch bank and credit card accounts online on a weekly basis, and update your tracking regularly. Here are a few approaches:

  • Try free online budget programs. Money Talks News partner PowerWallet lets you track expenses automatically for free. It and other free money management services like Mint and BudgetTracker make money by recommending financial products and supplying coupons.
  • Pay for a program such as Quicken.
  • Do it yourself. Track expenditures manually and offline on a spreadsheet.

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Mistake 4: Helping out adult kids

Many parents set themselves up for a crisis in retirement by supporting adult children financially. A study by Merrill Lynch says 60 percent of people 50 and older are assisting adult relatives financially.

If you are a parent who gives money to an adult child, remember the following: Adult children still have time to pay off college loans and save for retirement. Their parents — in other words, you — are running out of time to save for the golden years ahead.

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Take action:

  • Make a concrete plan with goals and deadlines for gradually withdrawing financial help from your kids.
  • Discuss the changes with your kids and help them learn to budget.
  • Model financial restraint and responsibility for your kids.

For more tips, read “Still Supporting Your Adult Kids? 5 Steps for Cutting Them Off.”

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Mistake 5: Claiming Social Security too soon

Waiting to claim Social Security benefits is one of the best investments around. If your full retirement age is somewhere between 66 and 67, your benefit check could grow by 32 percent if you wait until age 70 to collect, Social Security spokesman Michael Webb said in an email. If your full retirement age is 67, waiting until 70 yields a maximum possible increase of 24 percent.

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On the other hand, about half of retirees take Social Security at the earliest possible moment — when they’re 62. U.S. News & World Report says:

Social Security benefits are reduced for workers who sign up at age 62, and the amount of the reduction has recently increased from 20 percent for people born in 1937 or earlier to 25 percent for baby boomers born between 1943 and 1954. … The reduction in benefits for people claiming at age 62 will further increase to 30 percent for everyone born in 1960 or later under current law.

This Social Security Administration table shows the reduction for taking early Social Security benefits depending on the year you were born.

Take action:

  • Go to’s My Account to see your estimated benefits. If you’ve paid into the Social Security system, you can create an account and pull up a statement showing what you’ll earn by claiming benefits at various ages.
  • Keep your current job if you can and delay retirement. Or get a part-time job that helps you hang on longer before claiming benefits.
  • Hire a Certified Financial Planner to review your retirement plan, income and expenses with you.

For more tips on boosting your benefits, head to our Social Security Solutions Center Page, and read “13 Ways to Get More Social Security.”

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Mistake 6: Forgetting about the tax man

The IRS won’t disappear from your life when you retire.

For instance, traditional tax-deferred retirement plans like 401(k)s and IRAs require you to withdraw a minimum amount each year beginning in the year you turn 70½. If you don’t, you could be hit with a big penalty.

You can read more about required distributions at this page of the IRS website.

​Good planning, especially before retirement, can help manage the tax bite. One strategy, Money Talks News founder Stacy Johnson says, is to roll a portion of retirement savings into a Roth retirement plan, which has no minimum distribution requirements. Roth plans require taxes to be paid before money goes in. You withdraw the funds tax-free later. The strategies you use will depend on your income now and what you expect it to be after retirement.

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Take action: Make a plan — or get expert help making one — that takes taxable retirement income into account.

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Mistake 7: Ignoring estate planning

Get your affairs in order before you’re ill or old so you’ll have control over where your money and possessions go. It’s a kindness to your heirs, too, because they won’t be saddled with the work.

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Take action:

  • Make or update your will and, if appropriate, make a revocable living trust.
  • Sign a durable power of attorney naming someone you trust to make your legal and financial decisions if you cannot.
  • Assign health care power of attorney to someone to make your medical decisions if you’re unable.

Mistake 8: Investing too conservatively

As retirement grows nearer, it seems prudent to invest more conservatively. But you could live another 20 or 30 years. Savings held too conservatively shrink because of inflation. A portion of your funds needs to grow.

“Never taking risk means taking a different risk,” Stacy Johnson says.

Take action: Learn about investing so you can be confident in taking measured risks to earn gains, even as you grow older. It’s not difficult to put up the basic rules for sane investing — how spread risk among diverse holdings, how to use index funds as a low-maintenance investment strategy, how avoid paying excessive fees and how to adjust your exposure to risk so that it decreases as you get closer to withdrawing the money.

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How filing now would affect your family

Many people don't realize that the age you file for Social Security could have a big impact on your surviving spouse after you die. This is because, in many instances, a surviving spouse, such as a stay-at-home homemaker who didn't spend as many years working as their spouse, would likely qualify for a bigger survivor benefit than their own Social Security payment.

Older Couple Still Working
Filing early could mean less income for your spouse after you die. Image source: Getty Images.

However, this benefit is based on when you originally file, meaning your spouse would get a smaller survivor benefit if you file early, versus filing late. So if your spouse is likely to outlive you and will count on the survivor benefit after your death, it may make sense to delay when you claim Social Security so that your spouse's monthly income will support them after you are gone.

Quality of live versus quantity of money

Let's face it: Money is important, but so is having as much time as you can. No matter how long we live, it's too short, and at the end of the day, when you take Social Security is as much about time as it is about money. It's up to you to find the right balance between meeting your long-term financial needs and also having the freedom to enjoy your retirement when you're still young and healthy enough to be active.

But at the same time, if filing early could leave you at a higher risk of falling short financially later in life, you could become a burden on your family, particularly when it comes to healthcare. Over two-thirds of people who live to 65 will require long-term care during their life, and 80% of that care is given by family members, often because of financial reasons. So before you file now, make sure you really do consider the financial aspects, and think long term. The price for taking Social Security early could be much higher than you realize later in life.

The $15,834 Social Security bonus most retirees completely overlook
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Older Couple Sitting On Wood Deck
Image source: Getty Images.

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