Welcome to “Social Security Q&A.” You ask a Social Security question, and our guest expert provides the answer.
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This week’s question is from Rick:
I just turned 60, and my full retirement age is 66 and 8 months. I want to retire at age 63, but I do not plan to take Social Security until my full retirement age, or possibly age 70. How will it affect my Social Security payment if I do not work for those years and just live off my investments? Will it increase or decrease what I receive?
Rick, the best way to understand your situation is to look at your Social Security statement. You can get your statement by setting up an account at My Social Security. In your Social Security statement, you will find a table that looks like this one — except, of course, yours will have your Social Security information in it.
To answer your question, the key information is in the first three lines of the report, where it shows your benefits at 62, full retirement age and 70. As you can see, the benefits increase when you delay claiming. Indeed, benefits increase by 8 percent each year you delay claiming your benefits between full retirement age and 70. In the example above, benefits at 70 are 80 percent (=$2,094/$1,159) higher than they would be if claimed at 62.
One more factor to consider
There is, however, one important factor influencing these calculations that isn’t so obvious. Please note in the statement the words “If you continue working until” — you’ll find it before the line that shows the benefit at full retirement age as $1,680 per month. In doing these calculations, Social Security assumes that you will continue to earn the same amount in the future as you are earning today. If you stop working at 63, then your benefits will probably be lower than the estimates in this table.
Social Security benefits are based on the highest 35 years of earnings. If you stop work at 63, and wait to take benefits at full retirement age, Social Security could enter zeros for the years between 63 and full retirement age when calculating your actual benefits. So, the relationship between the estimated and actual benefits will depend on your earning history. If you have 35 years of high earnings before you reach 63, this might not affect your benefits at all. But if your present earnings are high relative to your previous earnings, your actual benefits would be less than shown in the table.
You can find your earning history in another table of your Social Security statement. When you look at that table, keep in mind that Social Security adjusts past earnings for inflation, so the calculation is not easy. But the table will show you how many years of substantial earnings you have. This will give you a clue as to how the Social Security benefits you receive can differ from the forecasted benefits estimated in your statement.
The bottom line is that your benefits will go up if you delay claiming. But if you stop work at 63, they may not be as large as they might have been if you continued working.
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The questions I’m likeliest to answer are those that will interest other readers. So, it’s better not to ask for super-specific advice that applies only to you.
I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years. In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.
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Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.
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