Is Taking Social Security Early a Good Idea?
What Is the Social Security Administration?
The Social Security Administration (SSA) is an independent government agency that administers Social Security. It is an insurance program that consists of retirement, disability and survivor benefits. In order to qualify for these benefits most workers pay into the system through Social Security taxes.
The head offices of the Social Security Agency are located in Woodlawn, Maryland and are referred to as the Central Office. There are tens of thousands of workers employed by the Social Security Agency and it is the largest government program in the United States.
It is estimated that by the end of the 2022 fiscal year the agency will have paid out $1.2 trillion in benefits to 66 million citizens and legal residents of the United States. An additional $61 billion is expected in SSI benefits and $7.5 million to low-income individuals.
This government agency is a vital part of the country's economy and without it millions of already struggling Americans would have nothing. It is a program that many have paid into for decades in preparation for retirement and as an insurance policy against sudden disability.
History of the Social Security Agency
On August 14th 1935, President Franklin D. Roosevelt signed the Social Security Act into law as part of his New Deal initiative. This led to the creation of the Social Security Board (SSB), a presidentially appointed group of three executives tasked with overseeing the Social Security Program.
With zero budget, staff or even furniture the SSB finally obtained funding from the Federal Emergency Relief Administration. It was on October 14th 1936 that the first Social Security Office opened its doors in Austin, Texas.
In January of 1937 Social Security taxes were first collected. Just a few years later the first Social Security check was issued to Ida Mary Fuller of Battleboro, Vermont. Ida’s check was dated January 31st 1940 and she received $22.54.
The SSB in 1939 merged with the U.S. Public Health Service, the Civilian Conservation Corp and other government agencies to become the Federal Security Agency. In 1846 under President Harry S. Truman the SSB was named the Social Security Administration SSA.
In 1953 the Federal Security Agency was dismantled and the SSA was placed under the banner of the Department of Health, Education and Welfare. Finally in 1994 President Bill Clinton made the Social Security Administration an independent body once again.
What Is the Full Retirement Age?
In order to answer the question of if taking Social Security early is a good idea we should first clarify what full retirement means. Full retirement is the age at which you can start to receive your full benefits without suffering any reductions.
What Happens if You Take Social Security Earlier?
Those who retire earlier than full retirement age will actually have a smaller monthly payment as a result. A percentage will be removed from the payment amount for every month early benefits are started. That said Americans can retire as early as the age of 62 for Social Security purposes but full retirement age can vary based on when you were born.
The full retirement age in the United States is actually being decreased so although right now it stands at 66 - 67 for those born between 1954 – 1960 it is now going to be 67 years of age for those born after 1960. Individuals who are about to turn 62 in 2023 will be at full retirement age when they turn 67. There are however some who would push for a raise to 68 years old for retirement.
Can You Still Earn While Claiming Social Security?
The Social Security Administration is understanding when it comes to working while claiming benefits but they do place restrictions. When it comes to maximum earning limits while receiving retirement benefits it is age dependent.
Those who are over 62 years old but under 67 are considered under full retirement age. These individuals while claiming Social Security in 2023 can earn up to $21,240. Every two dollars earned above this amount will see one dollar subtracted from your Social Security benefits.
People who are about to reach full retirement age are allowed to earn more during the part of the year prior to their 67th birthday. This works out by the Social Security Administration only removing one dollar for each three dollars earned over the limit. In 2023 the maximum earnings limit for those who are about to reach full retirement age is $56,520 a year.
Once an individual reaches the age of 70 all earnings caps are removed. This means they can earn their full benefits and as much other income as they so wish. It should also be noted that if you wish to work on until the age of 70 you may improve your eventual Social Security benefits.
How Does Working After Retirement Affect Your Social Security Benefits?
Working beyond retirement age is becoming more and more common as the years go by. This is because the average Social Security recipient earns around $1,543 a month. Anyone who has to rent or has a mortgage will instantly see that most of this could be spent on keeping the roof over their heads and paying a few utilities.
Basically speaking, Social Security payments for most Americans do not even reach the Federal poverty limit. As a result Social Security beneficiaries may apply for their benefits but stay on at their jobs. Others may struggle through for a while before having to reenter the workforce at least part time.
As mentioned the Social Security Administration fully understands this might be necessary so they have no issues with retirees returning to work if they have to. There are limits however and exceeding limits can cause you problems.
Those who took early retirement between ages 62 – 67 for example are only allowed to earn a maximum of $21,240 a year before penalties come into effect. If you exceed this limit you will lose $1 for every $2 you exceed the annual earnings limit.
If for example you earned $100 above the annual limit you would lose $50 from your annual Social Security benefits. Therefore it may or may not be worth exceeding the annual limit.
In the months of the year prior to you turning 67 your earnings limit increases to $56,520. So if your birthday is in July then from January to June of that year you can earn this higher amount without penalties from Social Security. It should be noted however that you lose $1 for every $3 you earn over the maximum amount.
As soon as you turn 70 years of age however all of these limits are lifted and you can earn as much as you like. There will be no penalties against your Social Security benefits and you claim the full amount along with whatever you earn from your job.
Is Taking Social Security Early a Good Idea?
The temptation to take retirement early is understandable especially if you have worked hard all your life and are ready to spend time with the family and enjoy the freedom this should afford. One huge consideration however is just how much will your Social Security be?
The amount you make on Social Security depends on your contributions into the system but in all likelihood the annual income will decrease claiming Social Security benefits alone. If it is enough money to allow you to do what you want to then this is great but millions of Social Security recipients merely scrape by.
Remaining in employment up to full retirement age means that full benefits can be claimed with no penalties. Retiring early however and claiming Social Security will see value permanently removed from monthly benefits payments. Essentially benefits are lower when the recipient starts Social Security earlier.
Now if the decreased benefits are enough to meet the retiree's needs then claiming early may be worth it. On the other hand if the decreased benefits may be difficult to deal with as the years go by, early retirement may not be the best option. This really is a case by case determination. It may be beneficial for some while for others taking Social Security early might make life more difficult.
When making the decision of when to start Social Security benefits the recipient really should assess their projected financial needs, existing resources and how much of their benefits they will receive. The earlier Social Security is taken the more will be lost from the monthly benefits. To retire early it is important to have a stable financial future.
Reference SSA Locator
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"Is Taking Social Security Early a Good Idea?". SSA Locator. Accessed on November 29, 2023. https://ssalocator.com/blog/is-taking-social-security-early-a-good-idea/.
"Is Taking Social Security Early a Good Idea?". SSA Locator, https://ssalocator.com/blog/is-taking-social-security-early-a-good-idea/. Accessed 29 November, 2023
Is Taking Social Security Early a Good Idea?. SSA Locator. Retrieved from https://ssalocator.com/blog/is-taking-social-security-early-a-good-idea/.