Your pre-retirement questions answered, part 3

This week’s inbox questions focus on Social Security benefits. 

Q. I was told since I am single and I have no dependents, I can claim social security at age 62. Is this a good idea? 

Unfortunately, as it is with most retirement decisions, the answer isn’t that simple. First, if you plan to work after age 62, there is an earnings limit that reduces your Social Security benefit by $1 for every $2 you exceed the limit (the 2024 limit is $22,320) until you reach your Full Retirement Age. Keep in mind that your Social Security benefit is reduced based on the number of months you file before your FRA. If your FRA is 67, your benefit will be reduced by 30% if you file for benefits at age 62. If you file at 63, the reduction is 25%, and at age 63 ½, it is only 22.5%. For example, if your benefit at age 67 is $3,000/month, it would be reduced to $2,100 at age 62 and increased to $3,720/month if you delay claiming to age 70. This is a permanent, lifetime reduction. It is a matter of receiving a smaller payment for more years or a larger payment for fewer years, remember that the end date won’t change based on when you filed for benefits.   

One significant benefit of delaying your Social Security to age 67 or older is that you will receive the larger benefit for the rest of your life with annual cost of living adjustments.  This can provide substantial protection against financial insecurity in your later years, which is referred to as longevity risk! There is no incentive to delay filing for your benefits after age 70 since the delayed credits stop accruing at this age. 

Whether you claim your benefit at 62 or later, is based on your immediate need for this additional income, your future need to have income and other factors such as your health, inflation, as well as whether you are providing financial security for dependents. 

You may want to watch the following YouTube webinar presented by the Bipartisan Policy Center:  

Q. I don’t understand the break-even age for claiming Social Security. Can you go over that? Thank you!  

The break-even age is the point in time when you will have received the same total cumulative income from Social Security whether you filed at age 62, 67 or age 70 (or any two ages you are comparing). For example, if you filed at age 67 you will receive benefits for 3 more years than if you filed at age 70. However, when you start your benefit at age 70 you will have received 3 years of 8% per year delayed retirement credits so your benefit will be 24% higher than the age 67 benefit. So, even though you would have received 3 more years of benefits by filing at age 67, the larger benefit you get by waiting until age 70 will catch up with the age 67 benefit by about age 82. In other words, at age 82 the total benefits you would have received if you started at age 67 and will be about equal to the total benefits you would have received if you started at age 70.   

Let’s say your benefit at age 67 is $2,500. By age 82, you would have received $2,500/month or $30,000/year for 15 years for a total benefit of $450,000. If you wait until age 70, the monthly benefit amount would increase to $3,100 or $37,200/year. By the time you receive benefits to age 82, you would have received $37,200 for 12 years or a total benefit of $446,400.   

There are other variables to consider such as annual cost-of-living adjustments as well as how long you plan to work and how much do you need this income that Social Security provides. It is more important to decide when you will need the income from Social Security more than how long you will need to live to “break-even.” Remember that if you die early, you won’t need the money anymore, but if you live a long time, you probably don’t want to run out of money. This decision is more flexible, but more complicated when a married couple is deciding when to claim their earned benefits or spousal benefit amounts.   

Q. My husband and I are both retired, he has CSRS, I have a private sector pension. Will he be entitled to spousal or widow’s benefits from my Social Security? Will I be entitled to the CSRS survivor benefit if I receive my own Social Security retirement? 

You could receive a survivor benefit from his CSRS retirement, if he elected this at retirement, regardless of your own private sector pension benefit or your entitlement to Social Security retirement benefits. If you predecease him, the Government Pension Offset will reduce his entitlement to Social Security widows' and spousal benefits by 2/3 of his CSRS retirement. This will most likely eliminate his entitlement to any of the Social Security benefits that you would have otherwise earned for him.   

Let’s hope that this onerous provision is eliminated by an act of Congress and supported by the members and the advocacy department of the National Active and Retired Federal Employees Association. NARFE reported that in a recent Senate Subcommittee hearing that Sen. Sherrod Brown, D-Ohio, who is the lead sponsor of S. 597 which, along with H.R. 82, is aimed at restoring full Social Security benefits to nearly 3 million Americans, shared: “These public servants dedicate their lives to keeping us safe, educating our children, and serving our communities, and they pay into Social Security just like everyone else… Social Security is the cornerstone of middle-class retirement security and should be available to everyone, including those who serve our communities…they should not be penalized for their service.”