Put away your calculators and W2 earnings statements. This is not a math lesson - thank goodness - because the math behind the calculation of your Social Security retirement benefit can be pretty complicated. That said, if you want to know the general calculations behind your Social Security retirement benefit, read on.
If you were born after 1929, have 40 credits of earnings history (e.g. 10 years’ of work), and are at least 62 years of age, you are eligible to collect Social Security retirement benefits. (Note that I didn't include being a U.S. citizen as being a requirement...because it isn't one.)
You know you're entitled to a retirement benefit from Social Security, but there seem to be a lot of rules regarding when you can actually collect it. To understand some of those rules, let’s assume we’re talking about an individual at Full Retirement Age of 66 with a Primary Insurance Amount of $2,500 per month.
We've established that a Social Security recipient can collect her retirement benefit anytime between 62 and 70. But does this mean she has completely unfettered access with no strings attached? Not really. There's something called the Social Security earnings limit that might prevent someone from collecting their full retirement benefit if they have employment earnings. A few points to note on the earnings limit:
The Social Security system is filled with complexity - questions ranging from when should I claim to isn't the Social Security system bankrupt to when can I collect my Social Security retirement benefit are kicked around on a regular basis.
So what if you're divorced? Thankfully, many rules and strategies remain the same regardless of whether you're married or divorced, albeit with a few caveats. The requirements that need to be satisfied in order to collect off of an ex-spouse's record are as follows:
"I just turned 62 and am now eligible to collect my Social Security retirement benefit. Why wouldn't I take the money and run?"
- Overwhelming majority of Americans
Reviewing recent reports on Social Security collections, approximately 90% of people claim at or before Full Retirement Age, and the majority of those folks are collecting at 621. And possibly with good reason. For example, would I ever recommend someone go into credit card debt to purchase groceries all in the name of delaying collection of their Social Security? Of course not! However, if there are other assets you can tap to meet everyday living needs, it's at least worth considering what value you might be leaving on the table by collecting upon eligibility as opposed to waiting a few more years.
I was speaking with everyone's favorite skeptic, Billy Know-It-All, recently (you know, the one who claims that Social Security is bankrupt?), and he was up to his old antics again. We were discussing the optimal time for him to claim Social Security, and inevitably life expectancy comes up.
We've all been there before, a perfectly pleasant and enjoyable evening at a cocktail party is progressing swimmingly. The kids are tucked in, the dishes are cleaned and put away, and the conversation is engaging. Enter wise guy, stage left. We all know who he is; the friend/relative/neighbor/co-worker who knows it all.
With concern about the Social Security trust fund's solvency and speculation rampant that the system is bankrupt (which it actually isn't), many people wonder whether potential future changes will be directed at their retirement benefits.
You took the money and ran, didn't you? When it comes to Social Security, most Americans do the same thing. According to the Center for Retirement Research at Boston College1, as much as 90% of Social Security recipients collect at or before Full Retirement Age with a significant number of people collecting as early as 62.
So does Social Security allow a mulligan? It does, albeit on a fairly limited basis. Let's see if you're eligible.