Delay Social Security

If you are still working and are considering taking social security, you may have your benefits reduced.  According to the Social Security Administration:

• If you are under full retirement age for the entire year, they deduct $1 from your benefit payments for every $2 you earn above the annual limit.  For 2016, that limit is $15,720.
• In the year you reach full retirement age, they deduct $1 in benefits for every $3 you earn above a different limit, but they only count earnings before the month you reach your full retirement age.  If you will reach full retirement age in 2016, the limit on your earnings for the months before full retirement age is $41,880.
• Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.  When you reach full retirement age the SSA will recompute your benefit amount to leave out the months when we reduced or withheld benefits for excess earnings.  This usually leads to a larger benefit, but not as high as if you just delayed your benefits.

Delaying 62 – Full Retirement Age 
Your benefit is reduced 5/9 of 1% for each month before full retirement age, up to 36 months.  If the number of months exceeds 36, then the benefit is reduced 5/12 of 1% per month.  Here’s an easier look at it:

Delaying Past Full Retirement Age 
For each month you delay taking benefits past full retirement age, you get an increase of 2/3 of 1% up to age 70.  That works out to an extra 8% for every year delayed.  If you were entitled to a $1,500/month benefit at age 66, you could delay 1 year and get $1,620/month at age 67 (8% more), $1,740/month at 68 (16% more), $1,860/month at 69 (24% more), or $1,980/month at age 70 (32% more).

Break-Even 
When deciding whether to take social security early or delay, it’s important to consider when the choices “break-even”.  This is the point when the total of social security payments from each option equal each other.  Some calculate break-even as a straight dollar-for dollar comparison.  Others take inflation, time value of money (potential earnings), and taxes into consideration.  As a rule of thumb, we consider 12.5 years from the time you take delayed benefits to be the break-even.  If you’re comparing starting benefits at age 62 vs. age 66, your break-even would be around age 78.5 (12.5 years after age 66). Break-even is the first step, you also need to consider your health and financial situation when deciding on a start date.