As your retirement draws near it is important to know all of your options when it comes to collecting Social Security. Many people rush through the Social Security application process without fully understanding all the ramifications. This can lead to a significant loss in monthly benefits. Here are some important facts to help you make the best decisions.

The earliest you can begin receiving SS retirement benefits is age 62, but you can wait as late as age 70. The earlier you enroll in the program the larger reduction you will see in monthly payments. For example, since 2009, those who enroll at age 62 see a 30% reduction. The reduction decreases as you get closer to full retirement age.

The Social Security Administration defines full retirement age depending on your birth date. Most people retiring in 2011 have a retirement age of 66 to 67 years old. Once you reach your defined retirement age you qualify for 100% of your benefits.

Keep in mind that although your monthly benefits are reduced when retiring early, technically you are still on pace to get the same total of benefits over your life span. The reduction simply recalculates how many payments you are likely to receive and then divides your total benefit by that number. Thus, you are not being “penalized” for retiring early.

Those who can wait until age 70 to begin receiving payouts get the advantage of retirement credits. These can add an additional 5 – 8% onto your monthly benefits. The amount of credit eligibility depends on your age, with anyone born after 1943 getting the full 8%. There is no additional benefit increase after you reach age 70.

So with all this in mind, the age you choose to retire does not necessarily affect your total Social Security benefit. The administration has calculated a set point for everyone at age 67. Thus, beginning payouts at age 62 or age 70 should equate to the same amount of money. The only difference is the amount you will see on a monthly basis.

Now if you plan to retire early and still work then there are other things to consider. First you should know that you are required to pay Social Security taxes on all wages, regardless of the fact you are receiving SS benefits. Second, there is maximum earnings cap you must follow to maintain your benefits. For 2011, the annual cap is $14,160 for individuals below full retirement age. Once you reach full retirement age the annual limit increases to $37,680.

There are a few advantages to working during retirement. While some of your benefits can be withheld if you exceed the annual earnings cap, your benefits will be recalculated after full retirement age and credit will be given for the months you did not get any benefits because of your earnings. This fact, combined with your additional SS wages could mean a higher benefit in future years.

So as you can see, there are several considerations to keep in mind when thinking about retirement. What works for some individuals may not apply to others. Perhaps the easiest way to think about Social Security is in terms of your own health and earning potential. If you are in good health and can continue to support yourself financially then it is probably worth the wait until full retirement age to collect 100% of your monthly benefits.

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Category: Finances
Keywords: social security,retirement options,full retirement,monthly benefits