How much do you know about Social Security?
Misconception #1 - You can collect as early as age 65, right?
This is just one of the misconceptions I’ve heard over the last 30 odd years.
One can indeed collect at age 65 if they qualify and in fact, can collect a retirement benefit as early as age 62 if they like. (If one is a widow, they may be eligible to collect a benefit as early as 60 or even at 50 if they are disabled).
Misconception #2 – You should always wait until age 70 to collect.
So, a question we get a lot is, “Should I start Social Security at 62, at my full retirement age (which is 67 for those born after 1960 and a bit before if born before 1960) or should I wait until 70?" (70 is the latest one can wait to collect)
As in most things related to finance, it depends. It is always best to sit down with a Certified Financial Planner® practitioner to discuss your family’s personal situation.
As I mentioned above, a widow can collect earlier than age 62 and if they have kids under 18 that are unmarried (or up to 19 if still in high school) these kids could also receive a benefit.
Just because you can, doesn’t always mean you should.
Years ago, I was working with a young widow through the Dana Farber Program I oversee there. (Learn more about that program HERE) Her husband passed away leaving her and three children under 18. Even though she was eligible to collect along with her three kids, I explained why that wasn’t the best idea.
Since she was still working and earning well over the income limit for Social Security’s “earnings test”, the maximum family benefit would have been reduced more than if only her children applied. So, that’s what we did. This maximized the amount of Social Security coming into the household.
As to the question of whether an individual should collect a retirement benefit at age 62, the answer is based on a few factors. If the person is still working and earning above $21,240 in 2023, for every $2 you go over that amount, Social Security holds back $1 in benefits.
Okay, what if I’m not working at 62. Even if I don’t need the money, shouldn’t I start collecting? I paid into the system for my whole life and what if I die in a few years? At least if I started collecting now, I’d get something for a few years.
Here is something not many talk about. Sure, you may read articles that say you should wait until 70 to start collecting. Logically that can make sense as one’s benefit grows at 8% each year from their full retirement age (FRA) (Again, this is age 67 if born after 1960 and some months before if you were born before 1960). That’s a pretty good deal.
But there is no guarantee on how long we will live
My brother-in-law died several years ago at age 69 of pancreatic cancer. From the time he was diagnosed to the time he passed away, was literally weeks.
Before that, he was very active and swam every day. He was one of those guys that looked like he would live into his 90’s.
When he was 62, we sat down and talked about Social Security. He was like the example above. Paid into the system for years and wanted to start getting his benefit.
I advised him to wait for the following reasons:
1. He didn’t need the money. My sister was still working.
2. He was very healthy, and it seemed he would have a long-life expectancy which would maximize his benefit by waiting.
3. By waiting, it would maximize the benefit my sister would receive if he predeceased her.
In this case, applying earlier was the right thing to do. The problem is, unless we are given a diagnosis before we think about collecting, we just don’t know.
Misconception #3 – Social Security benefits aren’t taxable.
They can indeed be subject to federal taxes (and some states as well) and can be taxed up to 85% for higher income earners.
Misconception #4 – If my spouse dies, I get their benefit as well as my own.
Sorry, it is one or the other. You do get the higher benefit if that’s any consolation.
Misconception #5 – If my ex-spouse is remarried, I cannot collect a benefit on their record.
This one is false as well. As long as you were married for 10 years before you got divorced, you along with the new spouse (and even another ex-spouse could collect on their record)
I actually helped a woman once collect on her ex-husband’s record while he was currently married, and we found out his other ex-wife from decades before was collecting as well. And, if you were married to two different people where the marriage lasted at least 10 years each, you can pick the higher earning ex to collect on if that benefit is higher than your own.
This was meant to be a short blog so if you have any questions about Social Security (or anything else) feel free to reach out to me by clicking my calendar link HERE
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In good health.
All the best.
Rick Fingerman, CFP®, CDFA®, CCPS®
Rick@PlanWithFPS.com
617-630-4978
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.