NOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. Please consult with your financial advisor before taking any action. For planning advice contact Polaris Financial Planning.
A quick look around the web and you can find that most advisors will tell you to wait as long as you can before you collect social security. Is this the right choice and more important is it the right choice for you.
Before we get to that we need to talk about how Social Security works. Like anything with the government there are many rules and the first one you need to know is how many credits you need. Yes, I said credits! If you are born in 1929 or later you will need 40 credits to qualify for Social Security. (born before 1929 you need fewer credits and you are now at least 85 years old so…. you probably know if you qualified by now).
How does one get credits? You used to earn 1 credit for every 3 months that you worked. Before, 1978 it was as little as $50! Now, you can get up to 4 credits per year but, only if you make enough. In 2014 you get 1 credit for each $1,200 earned. So, if you earn at least $4,800 of taxable income in 2014 you will get 4 credits. If you work and make at least $4,800 per year for 10 year – you have 40 credits and quality to collect Social Security when you are old enough. Earning more credits does not help. You either qualify (you have 40 or more) or you don’t (less than 40).
For our next step we will assume you have at least 40 credits and qualify for Social Security. How much will you get? That is much more complicated. To get a rough estimate go to this site! You can also sign up and get your own personal statement. Keep in mind, nothing is official until you apply.
If you are born in 1960 or after the full retirement age is 67 but you can start collecting a smaller amount at age 62. If your benefit is $1,000 at the age of 67 you could collect $700 per year if you start at 62.
As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime. If you retire early, the monthly benefit amounts will be smaller to take into account the longer period you will receive them. If you retire late, you will get benefits for a shorter period of time but the monthly amounts will be larger to make up for the months when you did not receive anything.
Unless, you have some good reason to wait you should seriously think had about collecting payments as soon as possible. I will discuss this more in a future post!