December 29, 2016
Many Americans choose to file for Social Security benefits before they reach full retirement age. But is filing early the best financial decision for everyone? The Social Security professionals at Disability Associates discuss the benefits and drawbacks of filing early.
Social Security benefits provide a vital source of income for many Americans. As such, it can be difficult not to capitalize on these benefits before reaching full retirement age (FRA). Before making the decision to file early, however, individuals should consider several factors.
Despite the widespread knowledge that individuals who file early for Social Security benefits will receive lower benefits payments, nearly two thirds of Americans make the decision to begin collecting prior to reaching their FRA. Should an individual make this decision, their maximum possible benefits could be reduced by up to 30%.
In contrast, a small percentage of individuals elect to wait until after reaching FRA to begin benefits collection. These individuals could be eligible for an increase to their maximum benefits, a bonus which grows by 1% annually in addition to a pre-determined percentage based on birth year up to age 70. Despite the clear financial benefits of waiting until after reaching FRA to file, however, several factors prevent many retirement-age Americans from taking advantage.
The absence or insufficiency of alternative income sources is one primary reason for filing early. Individuals also file early to ensure that they can cover cost of living, or when unforeseen circumstances arise. In some cases, filing for benefits early may be an individual’s best choice. If you are laid off from your job, or you are diagnosed with a serious health condition, filing for benefits may be in your best interest. If you have a condition that shortens your life expectancy, for example, filing early will help you cover various medical fees and cost of living. Additionally, if circumstances have required you to retire early, obtaining social security benefits will ensure that you maintain a steady income, even if your payments are smaller than you originally planned.
Individuals should reconsider before electing to receive benefits as a supplemental form of income before FRA. If you find yourself without full time work prior to reaching FRA, exploring other opportunities for supplemental income will allow you to maximize your potential benefits. Additionally, if you are between the ages of 62 and 65 and have an annual income of $15,720 or more while you receive Social Security, your benefits payments will be reduced by $1 for every $2 or $3 you earn per pay period.
If you have elected to collect benefits early, and subsequently secure a regular source of income, it may be a wise decision to invoke the Do Over Clause. This clause allows for individuals who have received benefits for 12 months or less to rescind their decision to receive them, provided that they return all benefits received within that period. Additionally, individuals who elect early and do not invoke the Do Over Clause will see an increase in their benefits payments once they reach full retirement age.
If your circumstances make early election for Social Security benefits a necessity, filing early can be a shrewd financial decision. In other cases, waiting to receive Social Security will benefit you more in the long run. If you are contemplating filing early, it is in your best interest to consult with a Social Security professional regarding how best to maximize your benefits while maintaining your lifestyle.
For assistance with determining whether you should file early for Social Security benefits, contact the Social Security professionals a Disability Associates today.