Social Security Benefits Greatly Depend On When Retirees Start Collecting
Whether Social Security is the backbone of a retiree's income, or just one in a variety of income sources, when he or she starts collecting can potentially cost tens of thousands of dollars over one's retirement years. NY1's Money Matters reporter Tara Lynn Wagner filed the following report.
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According to the Employee Benefit Research Institute, 68 percent of current retirees cite Social Security benefits as a major source of their income.
Baby boomers, the first of which are turning 65 this year, are also expected to start cashing in soon. A whopping 92 percent of those over age 55 say they plan to collect when they retire.
"The baby boomer generation is huge. We look at them as if they were a silver tsunami," says Social Security Administration Project Manager Everett Lo.
The big question is just when they should start collecting. While there is no "one size fits all" answer, there are some rules than can help them arrive at their decision.
A benefit amount is based on a formula that factors in a person's 35 highest years of work.
At the moment, the magic age to collect that full amount is 66. But as the Social Security Administration points out, people can start sooner but they will be paid less.
"You can collect benefits as early as 62. They are permanently reduced, it's reduced approximately 30 percent," says Lo.
Similarly, those who wait a little longer can collect a little more, an additional 8 percent each year, maxing out at age 70.
So for a full monthly benefit of $1,000, someone who start collecting it at age 62 will receive only $750, but someone who waits until 70 will receive $1,320.
According to Dr. Patrick Colabella of St. John's University, that can add up to a major difference in dollars, depending on how long the recipient lives.
"The difference can be as high or higher than $150,000 up to age 80," says Colabella. "So the answer, if you're looking strictly at mathematics and how it pays out, you're better off taking it at age 66."
If people keep working, even part-time, after they start collecting, that can impact their check as well. Between the ages of 62 and 66, the administration will withhold one dollar from a Social Security check for every $2 that the recipient earns over $14,000.
However, once someone reaches full retirement age, he or she can earn any amount of additional money with no penalty.
In order to help people do the math, the Social Security Administration has created a online retirement estimator, at SocialSecurity.gov.