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When to begin receiving social security benefits.



Social Security Administration (SSA (Serial Storage Architecture) A fault tolerant peripheral interface from IBM that transfers data at 80 and 160 Mbytes/sec. SSA uses SCSI commands, allowing existing software to drive SSA peripherals, which are typically disk drives. ) statistics indicate that a majority of U.S. citizens elect to begin receiving Social Security benefits at age 62; see Song and Manchester Manchester, city, England
Manchester (măn`chəstər, –chĕs'tər), city and metropolitan district (1991 pop. 397,400), NW England, on the Irwell, Medlock, Irk, and Tib rivers.
, "New Evidence on Earnings and Benefit Claims Following Changes in the Retirement Earnings Test in 2000" (July July: see month.  2006), available at www.ssa.gov/policy/docs/workingpapers/ wp107.pdf. Is this a wise choice? Is there an optimum age to begin receiving benefits? This column explores the answers to these questions.

An individual who reaches age 62 in 2007 has a full retirement age (FRA Fra: see Angelico, Fra; Bartolommeo di Pagholo del Fattorino, Fra; Fra Filippo Lippi under Lippi. ) of 66 (i.e., the age at which he or she would receive 100% of his or her Social Security benefits). Opting to receive benefits between ages 62 and 66 results in a reduced benefit. The reduction factor applied to the full benefit is 5/9 of 1% for each of the first 36 months that benefits begin before the FRA, plus 5/2 of 1% for each month in excess of 36 months; see "Find Your Retirement Age," available at www.ssa. gov/retirechartred.htm, and SSA Pub. No. 05-10070," Your Retirement Benefit: How It Is Figured" (January January: see month.  2007), available at www.ssa.gov/pubs/10070. html. Individuals who turn 62 in 2007 and want to begin receiving benefits immediately will get only 75% of the benefits they would have received had they waited until age 66. There will be no change (other than cost-of-living cost of living
n.
1. The average cost of the basic necessities of life, such as food, shelter, and clothing.

2. The cost of basic necessities as defined by an accepted standard.
 increases) to these individuals' benefits under their own work histories for the remainder of their byes.

Comparing Break-Even Points break-even point - In the process of implementing a new computer language, the point at which the language is sufficiently effective that one can implement the language in itself.  

The argument is sometimes made that if individuals saved all of their reduced monthly benefits from age 62 to 66, they would be far ahead of the person who waits until age 66 to begin receiving benefits.

The tax adviser might consider an example with three assumptions: (1) a 5% after-tax return rate; (2) all funds received at either age 62 or 66 are invested; and (3) no withdrawals are made from those investments over life expectancy Life Expectancy

1. The age until which a person is expected to live.

2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables.
. The break-even point is somewhere between ages 77 and 78 (see Exhibits 1 and 2 on p. 409).

According to according to
prep.
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

3.
 the uniform life expectancy table, life expectancy at attained at·tain  
v. at·tained, at·tain·ing, at·tains

v.tr.
1. To gain as an objective; achieve: attain a diploma by hard work.

2.
 age 62 is 85.5 years and at attained age 66 is 86.2 years; see Regs. Sec. 1.401 (a)(9)-9, Q&A-1. Based on these life expectancies and a break-even point around age 77, it is always better to begin to receive Social Security benefits at the FRA. But life does not always follow actuarial tables Noun 1. actuarial table - a table of statistical data
statistical table

table, tabular array - a set of data arranged in rows and columns; "see table 1"
; there are other factors to consider when advising clients when to begin receiving benefits.

Weighing Other Factors

Health: What is the individual's health status? Someone in poor health at age 62 may not live to be age 77, the statistical break-even point. Because of poor health, this individual may no longer be able to work and would need Social Security payments at age 62 to survive financially.

Earnings: What is the individual's earnings potential? The earnings limit for someone at less than the FRA who wishes to collect Social Security benefits in 2007 is $12,960; see SSA Pub. No. 05-10069, "How Work Affects Your Benefits" (January 2007), available at www.ssa.gov/pubs/10069.html. For every $2 that individual earns in excess of $12,960, $1 will be deducted de·duct  
v. de·duct·ed, de·duct·ing, de·ducts

v.tr.
1. To take away (a quantity) from another; subtract.

2. To derive by deduction; deduce.

v.intr.
 from his or her Social Security benefits; see id. Individuals with limited earnings potential could supplement their finances by continuing to work and collect Social Security benefits. Because of the earnings limit, those taking benefits before the FRA would need to earn three times their Social Security benefits for the penalty to equal the benefits they are receiving, and they would be left with no benefit.

Abilities: What are the individual's needs? Many people would prefer to continue working as long as possible. As the U.S. employment market turns toward service jobs and away from labor-intensive jobs, that preference might become easier to meet. A laborer who has a physically demanding job may not have the luxury of working beyond age 62, because he or she is not physically able to do so, while an individual in an office or other nonlabor-intensive job may not face the same physical requirements to continue working.

Marital status marital status,
n the legal standing of a person in regard to his or her marriage state.
: What is an individual's marital status? A spouse spouse  A legal marriage partner as defined by state law  can receive the greater of his or her own benefit or one-half of the spouse's benefit; see SSA Pub. No. 05-10035, "Retirement Benefits" (January 2007), available at www.ssa.gov/pubs.10035.html. Individuals can receive a spouse's benefit only when their husband or wife has also begun collecting benefits; see id. When there is a great disparity dis·par·i·ty  
n. pl. dis·par·i·ties
1. The condition or fact of being unequal, as in age, rank, or degree; difference: "narrow the economic disparities among regions and industries" 
 in a couple's earnings, or when one spouse has not been employed for long, one tactic is for the spouse who earned less to elect to receive benefits under his or her own work history at age 62. At the FRA, assuming that the higher-earning spouse is now eligible to receive benefits, the lower-earning spouse can claim spousal benefits spousal benefits Social medicine Benefits, including health and life insurance, provided to a spouse–ie, husband or wife–of an employee; in socially advanced nations and in the US, SBs may be extended to unmarried–including same sex–partners  and receive an increase if the one-half spousal spou·sal  
adj.
1. Of or relating to marriage; nuptial.

2. Of or relating to a spouse.

n.
Marriage; nuptials. Often used in the plural.
 benefit is greater than the benefit he or she had been receiving.

Savings: What other retirement savings does a person have? Even if individuals must retire at age 62, it might be a good idea to delay receiving benefits if they have other savings and investments to cover living costs. If an individual elects to receive early benefits at 75% of the full benefit, to come out ahead, the four-year investment return on those benefits would have to be about 8% a year. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke"
put differently
, Social Security is providing a guaranteed 8% return for waiting. It might be more beneficial to delay receiving benefits and use other investments for that four-year period.

Conclusion

The decision about whether to take Social Security benefits at age 62 or 66 can be simply a statistical and mathematical comparison, or it can be an emotional and thought-provoking exercise. It is important for advisers to ask questions and encourage dialogue so that clients can make well-informed decisions.

For further information about this column, contact Mr. Schulman at michael@schulmancpa.com or Mr. Sarenski at tjs@dbbllc.com.

Editor:

Michael David Schulman, CPA/PFS

Schulman CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , An Accountancy

Professional Corporation

New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
, NY

Author:

Theodore J. Sarenski, CPA/PFS, CFP 1. CFP - Constraint Functional Programming.
2. CFP - Communicating Functional Processes.
3. CFP - Call For Papers (for a conference).
 

Partner

DB&B Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page.
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Syracuse, NY
Exhibit 1: Investment with 5% return
starting at age 62, 2007-2033 (in dollars)

      Beginning     Amount     Earnings    Ending
Age    balance    invested *    at 5%      balance

62          --        19,044        476      19,520
63       19,520       19,044      1,452      40,016
64       40,016       19,044      2,477      61,537
65       61,537       19,044      3,553      84,134
66       84,134       19,044      4,683     107,861
67      107,861       19,044      5,869     132,774
68      132,774       19,044      7,115     158,933
69      158,933       19,044      8,423     186,400
70      186,400       19,044      9,796     215,240
71      215,240       19,044     11,238     245,522
72      245,522       19,044     12,752     277,318
73      277,318       19,044     14,342     310,704
74      310,704       19,044     16,011     345,759
75      345,759       19,044     17,764     382,567
76      382,567       19,044     19,604     421,216
77      421,216       19,044     21,537     461,797
78      461,797       19,044     23,566     504,407
79      504,407       19,044     25,696     549,147
80      549,147       19,044     27,933     596,124
81      596,124       19,044     30,282     645,451
82      645,451       19,044     32,749     697,243
83      697,243       19,044     35,338     751,626
84      751,626       19,044     38,057     808,727
85      808,727       19,044     40,912     868,683
86      868,683       19,044     43,910     931,638
87      931,638       19,044     47,058     997,740
88      997,740       19,044     50,363   1,067,147

* Annual total for reduced Social Security benefit payments of $1,587
per month.

Exhibit 2: Investment with 5% return
starting at age 66, 2007-2033 (in dollars)

      Beginning    Amount     Earnings    Ending
Age    balance    invested *   at 5%      balance

62           --          --         --          --
63           --          --         --          --
64           --          --         --          --
65           --          --         --          --
66           --      28,584        715      29,299
67       29,299      28,584      2,180      60,062
68       60,062      28,584      3,718      92,364
69       92,364      28,584      5,333     126,281
70      126,281      28,584      7,029     161,893
71      161,893      28,584      8,809     199,287
72      199,287      28,584     10,679     238,549
73      238,549      28,584     12,642     279,776
74      279,776      28,584     14,703     323,063
75      323,063      28,584     16,868     368,515
76      368,515      28,584     19,140     416,239
77      416,239      28,584     21,527     466,350
78      466,350      28,584     24,032     518,966
79      518,966      28,584     26,663     574,212
80      574,212      28,584     29,425     632,222
81      632,222      28,584     32,326     693,131
82      693,131      28,584     35,371     757,087
83      757,087      28,584     38,569     824,239
84      824,239      28,584     41,927     894,750
85      894,750      28,584     45,452     968,786
86      968,786      28,584     49,154   1,046,524
87    1,046,524      28,584     53,041   1,128,149
88    1,128,149      28,584     57,122   1,213,855

* Annual total for full Social Security benefit
payments of $2,382 per month, based on 2007
maximum Social Security benefit of $2,116 per
month increased by 3% annual cost-of-living
adjustment.
COPYRIGHT 2007 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2007, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Personal Financial Planning
Author:Sarenski, Theodore J.
Publication:The Tax Adviser
Date:Jul 1, 2007
Words:1598
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