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Should You Delay Your Social Security Benefit?

Seth Jentner05/28/2014

Maybe delaying your first Social Security retirement check is smart?

In the current low-interest rate environment with the potential for higher inflation and income taxes around the corner, it may make sense to delay your first Social Security retirement check. Anyone can claim a reduced benefit as early as age 62, and anyone can delay their benefit to as late as age 70. Each month of delay after age 62 not only increases the benefit, but the larger benefit also gets a bigger boost from future inflation adjustments.

Let me explain. Any worker born after 1943 who reaches full retirement age but delays taking benefits gets an 8% increase for each year of delay until reaching age 70. So a retiree who is entitled to $2,000 per month in benefits at her full retirement age of 66 can delay until age 70 and instead get $2,640 per month, a difference of almost $8,000 annually. However, if that same retiree took Social Security at age 62, it would be reduced to only $1,500 per month.

Delaying benefits may also help middle-income retirees avoid some of the tax on their Social Security income. Social Security benefits are tax free for couples with provisional income of less than $32,000 a year. The trick here is the definition of provisional income: It includes the usual taxable amounts, like pension benefits, IRA withdrawals, capital gains and interest but also includes half of the retiree’s Social Security benefit. As soon as provisional income exceeds $32,000, then 50% of the Social Security benefit is taxed. Once provisional income exceeds $44,000, then 85% of Social Security is taxed.

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