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Your Social Security Benefits: Are They Taxable?

Image courtesy of Salvatore Vuono at

Image courtesy of Salvatore Vuono at

If you’re receiving Social Security benefits, either for disability, retirement, or survivor’s benefits, when you file your tax return you will need to figure out if the benefits you’ve received during the prior year are taxable to you.

You’ll receive a Form SSA-1099 from Social Security sometime in the first months of the year, showing what your benefits were in the prior year, as well as any deductions that were made throughout the year – including Medicare premiums (Part B and/or Part D) if applicable, and federal income taxes withheld.

But are the benefits taxable to you?  At most, 85% of your benefit might be taxed – and it’s possible that none of your benefit is taxable, all dependent upon your total income for the year.  See this article for a detailed explanation of How Taxation of Social Security Benefits Works.  The IRS recently published their Tax Tip 2014-23, which details some facts about taxability of Social Security benefits.  The actual text of the Tip is below:

Are Your Social Security Benefits Taxable?

Some people must pay taxes on part of their Social Security benefits.  Others find that their benefits aren’t taxable.  If you get Social Security, the IRS can help you determine if some of your benefits are taxable.

Here are seven tips about how Social Security affects your taxes:

  1. If you received these benefits in 2013, you should have received a Form SSA-1099, Social Security Benefit Statement, showing the amount.
  2. If Social Security was your only sources of income in 2013, your benefits may not be taxable.  You also may not need to file a federal income tax return.
  3. If you get income from other sources, then you may have to pay taxes on some of your benefits.
  4. Your income and filing status affect whether you must pay taxes on your Social Security.
  5. The best, and free, way to find out if your benefits are taxable is to use IRS Free File to prepare and e-file your tax return.  If you made $58,000 or less, you can use Free File tax software.  the software will figure the taxable benefits for you.  If your income was more than $58,000 and you feel comfortable doing your own taxes, use Free File Fillable Forms.  Free File is available only at
  6. If you file a paper return, visit and use the Interactive Tax Assistant tool to see if any of your benefits are taxable.
  7. A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest.  Next, compare this total to the base amounts below.  If your total is more than the base amount for your filing status, then some of your benefits may be taxable.  The three base amounts are:
    • $25,000 – for single, head of household, qualifying widow(er) with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year.
    • $32,000 – for married couples filing jointly
    • $0 – for married persons filing separately who lived together at any time during the year.

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How Adding to Your Earnings Can Increase Your Social Security Benefits

Given the way that Social Security benefits are calculated, it should come as no surprise that increasing your income over time will make a difference in your eventual Social Security retirement benefits.  But how much of a difference does it make when your income is increased?

Of course, this is going to depend upon what your current income is, and how many years you have left before you’ll begin receiving benefits.  Keep in mind how your benefits are calculated – see this article for information about Computing Your Social Security Monthly Benefit – it’s based on your average monthly income over your lifetime.  Increasing that average will increase your PIA, which will in turn increase your benefit.

It’s definitely not a simple calculation to figure out what difference each increased dollar of income will have on your benefit.  Let’s walk through a few examples to see how it plays out.

Example 1

Jane, age 32, has been earning an inflation-adjusted $2,000 per month during her working career, beginning at age 22.  If her income only keeps up with inflation between now and age 62, her average indexed monthly earnings (based on today’s dollars) would equal $2,000.  Running the numbers to determine her PIA, we use these equations (2013 figures):

90% of the first $791 = $711.90
32% of the next $1,209 = $386.88

Jane’s PIA is the sum of these two numbers, $1,098.78.  This is the amount that Jane would receive at Full Retirement Age (of course, adjusted by inflation at that time). 

So what would happen if Jane can increase her average income by $100 per month, from now until she’s ready to retire?  Since she’s 32 now, she’s had 10 years at the average adjusted rate of $2,000 per month, so this means her income for the coming 30 years will need to be approximately $2,117.  Running the numbers on her new average monthly income of $2,100:

90% of the first $791 = $711.90
32% of the next $1,309 = $418.88

That brings Jane’s PIA to a total of $1,130.78, a monthly increase of $32 dollars.

What if the individual has a much lower current average income?  Intuitively you’d have to figure that the increase of $100 would have a higher percentage of impact on benefits, right?  It depends on where you are on the scale of bend points.  Let’s look at two individuals, Ed and Seth.

Example 2

Ed, age 37, has an average income of $1,000 per month over his lifetime. Seth is 42, and has a lower average income – only $500 per month.  Ed and Seth are thinking about starting a very small side-business which will bring in $100 a month each.  Neither fellow earns any more in his regular job (other than COLA increases) throughout the rest of his life.

As a result, without the side-business, Ed’s PIA at age 62 would be $778.78.  If he adds the side-business income, his average over his lifetime would increase, and so would his PIA – to $801.64, for an increase of $22.86 per month.  Seth, on the other hand, would have a PIA of $450 without the side-business.  Adding the additional $100 per month with the side-business would bring his PIA to $501.42 – an increase of $51! 

Seth’s PIA increased by a larger amount for two reasons: first of all, the $100 represents a larger percentage increase versus Ed’s increase.  Secondly, since Seth’s average income is below the first bend point ($791) both before and after the increase, a much larger share of his increased average income applies to his PIA.  In this case, the $100 increase made a difference for each, just by appreciably different amounts.

What about higher incomes?

Example 3

Anna, age 42, has averaged $6,000 per month over her lifetime.  If she continues at that rate for the coming 20 years, her PIA would equate to $2,422.46.  If Anna receives an increase in her salary of $100 per month for the coming 20 years, her PIA would increase to $2,431.03.  This increase of $8.57 per month is due to the fact that Anna’s average income is above the second bend point, so each dollar of average income increase only has a 15% impact on her PIA.

These examples illustrate how the Social Security benefit calculation benefits lower income folks at a higher rate (proportionally) than folks at higher incomes.  One particular career where this can really make a huge difference is in the service industry – particularly waiters and waitresses.  Since cash tips are voluntarily reported, waiters and waitresses typically under-report these, to their own detriment, regarding Social Security benefits.  Since quite often waiters and waitresses are on the lower end of the wage spectrum, taking credit for the dollars earned in cash tips can have a lasting improvement in future Social Security benefits!

A Few Things for a Single Person to Consider When Planning Social Security Filing

Single man

Single man (Photo credit: @Doug88888)

The decision of when to begin receiving Social Security benefits can be a bit daunting, because there are many things to take into account when making this decision.

The basic concept of the lifetime value of benefits taken at various ages is the most common thing to consider, when this is really not as important as you might think.  This is especially true for single person – since the benefit reduction and increase factors are designed to achieve a similar lifetime result for the average lifespan.

In other words, if you are an average person with an average lifespan, it won’t make much difference at what age you file for benefits, as you’ll receive approximately the same amount by the end of your average life, whenever you begin receiving the benefits.


Another factor that you need to keep in mind is how Social Security benefits are treated, tax-wise.  At a maximum, your Social Security benefit will be taxed as 85% – for every dollar in Social Security benefits you receive, you’ll only owe income tax on 85 cents at most.  At the other end of the spectrum, you may not be taxed at all on your Social Security benefits, depending on your total overall income.

For example, Jane, age 62, is retiring.  She has a modest pension of $10,000 with a cost-of-living adjustment annually, and her annual expenses are $40,000 per year.  Jane has an IRA worth approximately $300,000, and she has a Social Security PIA (benefit at age 66, her Full Retirement Age) of $2,000 per month.

Jane could take her Social Security benefit now, at age 62, at a reduced amount of $1,500 or $18,000 per year.  If she did this and she’s receiving the $10,000 pension, she’d also need to withdraw approximately $15,000 from her IRA to make up the difference.  When she has the income as described, she will incur income tax of approximately $2,478.  This is the approximate amount of tax she’d have on her income for her life.

Another way to arrange Jane’s income would be for her to hold off on taking the Social Security benefits until later, and take more from her IRA each year to make up the difference.  This would require withdrawals of approximately $35,000 per year from the IRA.  Along with the pension income, this would result in annual taxes for Jane of roughly $4,800.

The good part is that, when Jane reaches FRA, age 66, she could start receiving Social Security benefits at the rate of $2,000 or $24,000 per year.  At that point she could reduce her IRA withdrawal to approximately $6,000 per year – and because of the way Social Security is taxed, at this stage she would only have tax of $600 per year.  None of her Social Security would be taxed, and this would remain the same for the rest of her life.

Had she delayed even further, to age 70 to begin receiving Social Security benefits, her total benefit would now be $31,680 due to the delay credits.  At this point she would not need IRA withdrawals any longer, and she would have no income tax at all for the rest of her life.

Let’s shake up the details a bit more, with Joe’s situation: at age 62, he has annual expenses of $60,000, and a PIA of $30,000 per year – meaning he could receive $30,000 per year ($2,500 per month) if he files at age 66.  Joe has an IRA worth $1 million, and no pension.

If Joe starts Social Security benefits at age 62, his benefit will be reduced to 75%, or $22,500.  In order to achieve his $60,000 income requirement, he’d need to withdraw roughly $47,000 from his IRA, and his total income tax would be approximately $9,960 – and he’d have a similar tax for the rest of his life.

If Joe instead delays to age 66, his FRA, to begin receiving Social Security benefits, he’d need to take roughly $70,000 from his IRA for those four years, and his tax is approximately $10,928 for those years.  At age 66 he’ll have $30,000 in Social Security benefits, which he would need to augment with IRA withdrawals of approximately $37,000.  Tax on this income would be down to $7,253, which would be about the same for the rest of his life.

Delaying to age 70 would have an even more profound impact: At this stage Joe would be eligible for $39,600 in Social Security benefits, so he’d only need to withdraw roughly $24,000 per year from his IRA, and the total tax on this income would be down to $3,353 for the rest of his life.  The dramatic decrease in tax is due to the fact that, at this income level, less than 50% of Joe’s Social Security benefits are taxed.

Other sources

It should be noted here that in the all of the examples for both Jane and Joe, there is always a possibility that their IRAs might run out of money in their lifetimes with these long-term IRA withdrawal rates.  This is far less likely in the cases where they depend on a larger amount of Social Security benefits for income by delaying benefits to later ages.

The examples below don’t make assumptions about rate of return on the IRA assets, as we have also not made any assumptions about Cost-of-Living Adjustments or inflation – all to keep the figures simple to follow.

For the first example with Jane starting SS benefits at age 62 and withdrawing $15,000 per year, assuming that she lives to age 81 she’d need $285,000 in the IRA to start with.  If she delays to age 66 to start benefits, her IRA would need to have approximately $230,000 to support her need of $35,000 for four years and then $6,000 for the remaining 15 years to age 81.  Delaying to age 70, she’d need a total of $280,000 from her IRA to withdraw $35,000 for 8 years.

If she lives beyond age 81, in the first case she’s only got $15,000 left, and she needs to withdraw $15,000 each year to cover her expenses, or only one year.  In the second case she has $70,000 left in her IRA, from which she needs to withdraw $6,000 each year, so it will last a little less than 12 years.  In the last case, Jane has $20,000 left in the IRA, but she doesn’t need to withdraw anything at all – so in other words, her income is arranged to last for the rest of her life, with no limitation, plus no income tax!

For Joe – in the first case he’d need $893,000 from his IRA to get him to age 81.  The second, he needs $835,000 – four years at $70,000 and 15 years at $37,000.  In the last situation, Joe needs $560,000 for the first 8 years, and then $264,000 for the eleven years to age 81, for a total withdrawal of $824,000.

If he lives past age 81, he’s got $107,000 in the first case, from which he needs to withdraw $15,000 per year, leaving him with just over 7 years of withdrawals.  In the second case, with $165,000 remaining in the IRA and an annual withdrawal of $37,000, leaving him with just over four years of withdrawals.  In the last case, he has $176,000 and needs to withdraw $24,000 annually, or just over 7 years.

So in Joe’s case, he either needs to reduce his expenses or count on the fact that he’ll only live to age 88 (or 85).  At any rate, his best outcome would occur by delaying to age 70 – because a larger amount of his required income is guaranteed since it’s Social Security benefits, rather than the finite IRA account which could run out during his lifetime.

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3 things you can do if you’ve filed for Social Security benefits too early

It's too early for the beach

It’s too early for the beach (Photo credit: c@rljones)

I often hear from people who, for whatever reason, decided to file for their Social Security retirement benefit immediately upon reaching 62 (or 66, or whatever age), and now they have found out that this wasn’t necessarily the best option for them to maximize their lifetime Social Security benefits.

There are several things that you can do about this – three that come to mind at the moment.  Below we’ll work through each of these ways to fix a situation where you filed too soon.

Pay it back

If it’s been less than 12 months since you filed, it’s possible for you to withdraw your application for benefits and pay back all that you’ve received to date.  Once you’ve done this, as far as Social Security is concerned, you never filed.  All of your benefit options are intact, just as if you hadn’t filed in the first place.

If your spouse or other beneficiaries began receiving benefits based on your record when you filed for your own benefit, those benefits will cease, and all benefits that your spouse or beneficiaries have received to date will also have to be paid back.

This can be quite costly to do, but the increased future benefits are likely worth the cost.

Work it off

If it’s been more than 12 months since you filed or if the cost to pay it all back is just too much to stomach, there’s another way to sort of re-set your options.  This method isn’t as good as the payback option, but it’s the next best available to fix your problem if you are still working (or can get a job) and you’re younger than Full Retirement Age (FRA).

Here’s how it works:  if you are under FRA and working while receiving Social Security benefits, for each two dollars above a certain limit ($15,120 in 2013 and adjusted each year) one dollar of benefits will be withheld.  For example, if you are receiving $12,000 per year in Social Security benefits and you get a job that pays you $25,000 a year, $4,940 of your benefits will be withheld.  Since you’re receiving $1,000 per month in benefits, this means that 5 months per year will be withheld.

Once you reach FRA (where the earnings limit no longer applies) if you have earned that extra amount for four years (thereby giving up 20 months’ worth of benefits) your benefit will be adjusted.  The adjustment makes your benefit reduction appear as if you filed 20 months later than when you actually did.  So if you originally filed at exactly age 62, your benefit would be reset at FRA as if you filed at age 63 and 8 months.  This would have the effect of increasing your benefit by 9.44%.

If you earned enough in your job to eliminate all of your Social Security benefits between age 62 and 66, you would effectively re-set your benefit as if you had delayed filing until age 66.

During the year that you will reach FRA, the earnings limit is different, and it’s applied differently as well.  You can earn as much as $40,080 for the year, and each three dollars above that limit will reduce your benefit by one dollar.

It’s important to note that these earnings must be active earnings, such as from a regular job or self-employment.  Withdrawals from an IRA, while taxable, are not counted toward the earnings limit and can’t be used to reset your benefits.


Although most of the time the concept of suspending your benefit is discussed as a part of the “file & suspend” tactic, where you file and then immediately suspend receiving benefits in one action, you are allowed to suspend your benefits at or after FRA regardless of when you originally filed.  So, if you filed for your Social Security retirement benefit early and you decided that it was a mistake, when you reach FRA you have the option of suspending your benefit and allowing the delay credits to accrue on your record.

For example, if you filed at age 63 and collected benefits until you reached FRA at age 66, you could suspend your benefits at that point.  If you were receiving a $1,000 benefit from filing at age 63, this was 80% of your PIA, which would have been $1,250.  If you suspend at FRA and then re-file at age 70, then your delay credits would be 32% – which would bring your total benefit up to 112% of your PIA, for a new benefit of $1,400.

While your benefit is suspended your spouse and/or beneficiaries will continue to receive their benefits based on your record just the same as if you were actually collecting the benefits (subject to the family maximum).  The delay credits, once earned, will not have an effect on those benefits that they’re receiving while you’re alive, but the delay credits will be applied to any survivor benefits that they receive after your passing.

The Combo

You could use the Suspend option in tandem with the Work it off strategy:  by earning above the limit each year you’re improving the benefit that you’re eligible for at FRA – and then when you get to FRA you can suspend your benefits to further increase your benefit.

In addition to the above options, if none of them will fit your needs (such as if you don’t have another source of funds to get you by while you suspend and delay), if your spouse has not yet filed you can delay your spouse’s benefits as long as possible in order to maximize that benefit.  Of course, this is to assume that your spouse hasn’t already filed too.  There are several strategies that could help you to maximize benefits in that case, including filing a restricted application once he or she reaches FRA.

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Restricted Application is Available via the Online Application

I learn something new almost every day.

Today (well, not today but recently), I learned something about the online application for Social Security that I didn’t know: the restricted application for Spousal Benefits is available as a choice when you apply using the online application system! (If you want more information on why a restricted application is important, see this article about Leaving Money on the Table.)

For quite a while now I’ve been telling folks that the best way to apply for the restricted application is to go to your local office.  When you get there and explain that you want to submit a restricted application for Spousal Benefits only, the first person that you talk to will likely tell you that you can’t do this, because your own retirement benefit is greater than half of your spouse’s PIA, or something like that.  Then my advice has been to ask for a supervisor and explain it again, and keep insisting that you’re eligible to do this (make sure that you are, first of course!), until you get the right person to agree with you.

As it turns out, for some time now you’ve been able to select this option via that online application.  See below – this is a screenshot of the application system (sorry it’s not very legible).  The last part in bold says:

If you are eligible for both retirement benefits and spouse’s benefits, do you want to delay receipt of retirement benefits?

bene app screenshot restricted app

It’s clear that this option gives you the ability to delay the receipt of your retirement benefit and only receive the spouse’s benefit, assuming that you’re at least at Full Retirement Age and your spouse has applied for his or her benefit.

This is great news – since now you won’t have to go through the hassle described above in order to submit a restricted application for spousal benefits.

An additional, likely unintended positive to this development is that you could use this blog to show the first person you talk to (if you still opt to visit the local office) in order to help prove your eligibility for this option.

How to Reduce or Eliminate Windfall Elimination Provision Impact to Your Social Security Benefit

Basic WEP encryption mechanism

In prior articles we have discussed the Windfall Elimination Provision (WEP) which has the effect of reducing a portion of your Social Security retirement benefit if you’ve worked in a job that was not covered by Social Security which also provides a pension.  This article deals with two ways that you can remove the impact of the WEP from your benefit – neither of which is simple, and neither of which can be done after you’ve retired.

The two methods are:

  1. Add years of “substantial earnings” to your record
  2. Take a lump sum distribution from your pension before you are eligible to receive the pension.

Adding Substantial Earnings Years

If you have the opportunity to work in a job that is covered by Social Security withholding and you have “substantial earnings” from that job, each year that you work in this SS-covered job adds to your ability to begin eliminating the WEP impact.

This is not an insignificant undertaking.  Substantial earnings for 2013 is defined as $21,075 or more in earnings covered by Social Security, and this figure is adjusted annually by the Cost-of-Living increases.  Plus, it doesn’t make a difference on your WEP impact until you’ve added 21 or more years of substantial covered earnings to your record.

The good news is that if you have 30 or more years of substantial earnings in a Social Security-covered job, you’ll eliminate the WEP impact altogether.

Taking a Lump Sum Distribution of Your Pension

If you don’t have enough years with substantial earnings, there is another way that you can eliminate the impact of WEP, which again isn’t an insignificant thing to do.  If you have the ability to take a lump-sum distribution of your non-covered pension before you are eligible to receive the pension, you can eliminate WEP impact altogether.  By doing this you’ll forfeit any future pension that you might have received from the non-covered employer.

The timing on this has to be right – if you are eligible for the pension when you take the lump sum distribution, you’ll still have WEP impact.

For example, John is a teacher in a state in which teachers are not covered by Social Security and he works there long enough to build up a pension.  He decides to leave that state and go to another state where teachers are covered by Social Security.  He’s young enough that he is not yet eligible for the pension in the first state.  If he withdraws the entire pension from the first state and thereby forfeits all future claim to that pension, he will no longer have future WEP impact on his Social Security.  That is, unless he goes back to another non-Social-Security-covered job at a later point in his life.

Important points

It’s important to note that WEP impact only occurs if the pension is considered to be the primary retirement plan.  This is regardless of whether the pension is funded by the employee only, by a combination of employer and employee contributions, or solely by the employer.

If the plan is considered to be a supplemental plan (for example, as a 403(b) plan might be to a regular pension plan), then if the source of funds is solely from the employee, this plan will not produce a WEP impact.  In a case like this, the primary plan would likely produce the WEP impact anyhow, unless one of the options listed above is used to eliminate the impact.

In addition, payments from optional savings plans, such as the TSP (Thrift Savings Plan) for CSRS employees, are not considered as WEP-impacting pension payments.

If there are multiple sources of pension from the non-covered employer, only the applicable pension for WEP impact is considered when calculating the maximum WEP impact. This is because WEP impact can’t be more than 1/2 of the applicable pension amount.

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Average Indexed Monthly Earnings Years

Panneau Aime la Plagne

We’ve discussed the AIME (Average Indexed Monthly Earnings) calculation before, and it’s not like anything has changed about those calculations.  It turns out that the calculation process can be a bit confusing (shocked? I think not).

The AIME is calculated using what’s known as the “base years”, which are those years between your age of 22 and 62 that occurred after 1950 (I realize most folks needing to know about this didn’t need that 1950 reference, but it’s part of the rules, so I included it).  Of those 40 years, only the 35 years with the highest earnings are used to calculate the AIME.  The earnings for each year is indexed (see the original article for details) and then the earnings are averaged.

One of the questions that comes up is how years after age 62 are handled in this process.  If earnings in subsequent years are greater (after indexing) than earnings in the earlier “top 35” that was used for the calculation, your AIME can be recalculated, which might make a change to your PIA.  So working past your age 62 can have a positive impact on the benefit that you (and possibly your family) can receive.

See the earlier article about the Primary Insurance Amount (PIA) calculation for how the AIME is used to generate the PIA.  Bear in mind that additional earnings may not have a dramatic impact on your PIA.  This is because (using 2012 figures) any amount of your AIME between $767 and $4,624 are included at the rate of 32%, and AIME amounts above $4,624 are included at only 15%.  Therefore, increases to your AIME above those amounts have only a minimal impact on your PIA.

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“Swim With Jim” Radio Interview by Jim Ludwick

I recently had the honor of being interviewed on the radio by Mr. Jim Ludwick, a colleague that I admire and look up to a great deal.  Jim is a CERTIFIED FINANCIAL PLANNERTM professional, and his practice is based in Odenton, Maryland with additional offices in Washington, DC, Santa Barbara, California, San Mateo, California, and New York City.  Jim also is a fellow member of the Garrett Planning Network.

In the interview we talk very briefly about some of the important factors of Social Security that baby boomers need to address as they plan for Social Security benefits.

You can follow Jim’s radio program on BlogTalkRadio; his channel is Swim With Jim.


Listen to internet radio with Swim with Jim on Blog Talk Radio

To hear the interview, click the “Play” button above.

In the interview I mention that it can be helpful to have an advisor work with you to understand your Social Security benefits.  Members of the Garrett Planning Network are uniquely positioned to help in such matters, as we operate on an hourly basis providing financial advice, unlike most of our financial industry brethren (and sistren).  Seek out your nearest Garrett Planning Network member if you need help!

Wealth Defense: When Should You Start Social Security Benefits?

The foregoing is a re-post of an article that I wrote which was included in The Motley Fool’s Rule Your Retirement newsletter.  Enjoy!

Want to double a chunk of your retirement income? It’s easy — just delay taking Social Security by about six years!

OK, so it’s not really that simple. The time to apply for Social Security benefits is different for each individual; there is no magical “best age” for everyone. Thus, to maximize your benefit, it’s important to understand the consequences of choosing to apply at different ages.

It all starts with the most important age: your full retirement age, or FRA (see table below). If you receive your Social Security retirement benefit before your FRA, the benefit will be reduced. The biggest reduction is at age 62, the earliest you can begin receiving benefits (except for widows and widowers, who can begin survivors’ benefits at 60).

Year of Birth Full Retirement Age
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

The more you delay applying for benefits after your FRA, up to age 70, the more your benefit will increase. At 70, the benefit no longer increases. To show how age affects Social Security, the table below displays estimated annual benefits for a person born on June 1, 1950, who earned $60,000 last year (all amounts are in future, or inflated, dollars).

Worth the Wait?

Age Annual Benefit
62 $13,764
64 $17,064
66 $21,300
68 $26,796
70 $33,048

The SSA employs really smart actuaries who have the very fun job of poring over death statistics (which may or may not involve midnight visits to cemeteries — I can’t divulge my sources). These actuaries aim to coordinate the reductions and increases with average life expectancy so that it shouldn’t matter when you take your benefit; it should work out about the same no matter when you start. But average life expectancy hasn’t quite caught up with actuarial estimates. So, since the average life is slightly less than the crossover point, it’s a bit in your favor to start early if you’re the average person who lives to the average life expectancy.

Factors to Consider

Despite what the actuaries say, there are times to delay taking Social Security to increase the chances that you’ll receive the most bang from your benefits.

Will you live longer than average? About one of every four people age 65 today will live past age 90; one in 10 will live past age 95. So if your family leans past the occasional octogenarian, add longevity to your equation. When delaying benefits, the break-even point usually ranges from age 78 to 82. It’s no coincidence the average life expectancies for men and women in the U.S. are about 76 and 81, respectively.

Will you continue working? You can receive Social Security while still earning a paycheck, but doing so before your FRA could reduce your monthly benefit, depending on how much you’re earning. This is made up for when you reach FRA, but it’s important to know so that you can plan for the benefit reductions. Also, if you continue to work while receiving benefits, you’ll continue accruing credit for your annual wages. If you have earlier years on your record with low (or no) wages, your benefit could increase.

Do you really need the money? If you’re ill, have a shortened life expectancy, or face limited resources, it may be necessary to take Social Security early. The financial calculations I do for my clients always assume the recipient will live to at least 80 and can use other resources until age 70. If one or both of these circumstances is not the case for you, it probably makes more sense to take your benefits earlier.

Do you have a spouse or dependents? The age you apply for benefits locks you into a benefit base for the rest of your life. (Technically, you can get a do-over within 12 months of filing if you give back all the money.) Your benefit base might affect your spouse’s benefit, both when you’re alive and if you die first. The benefit base can also determine payments to other family members. We’ll delve more into this next month, when we explore strategies for maximizing family benefits.

Let the Numbers Do the Talking

Want to see how application age can affect your benefit? The SSA has a collection of online Social Security calculators to help estimate your benefit amounts at various ages, which can help you in your decision-making.

Early Social Security Filing Examples


Most of the examples that you see indicate that filing for Social Security benefits as late as possible is the best way to go.  However, this is not always the case, given that you’re receiving the benefit (albeit at a reduced rate) for a longer period of time.  Let’s work through some examples to show how this works.  This article will only deal with single individuals – we’ve covered spouse benefits in several other articles, it’s time to provide some guidance for single folks.

Example 1, Filing at 62 vs 66

John is single, age 62, and his benefit at Full Retirement Age (FRA) has been estimated at $2,000, so his benefit at age 62 would be $1,500, or 75% of the amount at FRA.  If he takes the benefit now, he’ll receive $18,000 per year for the next four years. (COLAs have been eliminated in this example to keep it less confusing.)

If he is in a position where he doesn’t necessarily need the money, he could invest the funds as he receives them.  If he invested those funds at a 5% fixed rate, when he reaches age 66 he’ll have a total of approximately $81,461.  He’ll also continue to receive the same $18,000 year-after-year.

Now, let’s assume at this age that John needs the $2,000 for living expenses.  If he uses the current $1,500 of Social Security benefits and supplements it with his “stash” he’s built up over the previous four years, letting the remainder grow at interest, it will take twenty years before he’s run out of the stash account.

The problem is, once John has done that now, he’ll be stuck with an income that is $500 less (in today’s dollars) than what he needs.  If he has no other resources, such as a 401(k), pension, or IRA, he’s in a pickle.

If John was somehow able to generate 7% from his savings, he’ll buy himself another four to five years, but that’s really it.

Example 2, Filing at age 62 vs 70

Same facts as Example 1, but now we’ll compare the outcome if John is able to hold off to age 70, at which point his benefit would be increased to $2,640.

Running the numbers again, upon reaching age 70, John’s savings account at 5% will have grown to approximately $171,884.  Now, if John’s income requirement is still only $2,000 per month, his side account generates enough interest (at 5%) to sustain over time without depleting it. (This assumes that he is financially in a position to delay, using other sources to cover his expenses up to age 70.)

However, if John had delayed receiving his benefit to age 70 and then began using $2,000 for expenses and banking the rest in the same type of savings account, he’d still have more money in the account if he started early benefits – for fifteen years, to his age 85.  From that point forward, it would be more beneficial to have waited to age 70.

Example 3, Filing at age 66 vs 70

Again, same facts, but John waits to file at Full Retirement Age (FRA), age 66, and puts the full amount of his benefit in the same savings account at 5% interest.  Now, when he reaches age 70, the savings account has grown to more than $106,000.

He still only needs $2,000 to live on – and when compared to delaying up to age 70, since he is able to save a portion of the larger, full benefit, he is able to build up his savings account, but the “wait ‘til 70” account doesn’t become larger than the “file at 66” account until he reaches more than 93 years of age!


In these examples, which I’ll admit are far from comprehensive, we can see that longevity makes all the difference.  If you live a very long life, it makes more sense to delay, assuming you can cover your expense needs in the meantime.

In many cases though, the individual cannot wait, needing the money earlier.  In addition, most folks take a view that they’ll not likely live to the age needed in order to make the delay option pay off.  So – all things considered, it might be better for you to file earlier, as always, depending upon your circumstances.

Leave your own situations in the comments section below (not too complicated though!), and I’ll gather some of the more common situations and show how some tactics might play out at differing filing ages.

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