Jane M. Young CFP, EA
You can begin taking Social Security at age 62 but there are some disadvantages to starting before your normal retirement age. The decision on when to start taking Social Security is dependent on your unique set of circumstances. Generally, if you plan to keep working, if you can cover your current expenses and if you are reasonably healthy you will be better off taking Social Security on or after your normal retirement age. Your normal retirement age can be found on your annual statement or by going to www.socialsecurity.gov and searching for normal retirement age.
Taking Social Security early will result in a reduced benefit. Your benefits will be reduced based on the number of months you receive Social Security before your normal retirement age. For example if your normal retirement age is 66, the approximate reduction in benefits at age 62 is 25%, at 63 is 20%, at 64 is 13.3% and at 65 is 6.7%. If you were born after 1960 and you start taking benefits at age 62 your maximum reduction in benefits will be around 30%.
On the other hand, if you decide to take Social Security after your normal retirement age, you may receive a larger benefit. Do not wait to take your Social Security beyond age 70 because there is no additional increase in the benefit after 70. Taking Social Security after your normal retirement age is generally most beneficial for those who expect to live beyond their average life expectancy. If you plan to keep working, taking Social Security early may be especially tricky. If you take benefits before your normal retirement age and earn over a certain level, the Social Security Administration withholds part of your benefit. In 2012 Social Security will withhold $1 in benefits for every $2 of earnings above $14,640 and $1 in benefits for every $3 of earnings above $38,880. However, all is not lost, after you reach full retirement age your benefit is recalculated to give you credit for the benefits that were withheld as a result of earning above the exempt amount.
Another potential downfall to taking Social Security early, especially if you are working or have other forms of income, is paying federal income tax on your benefit. If you wait to take Social Security at your normal retirement age, your income may be lower and a smaller portion of your benefit may be taxable. If you file a joint return and you have combined income (adjusted gross income, plus ½ of Social Security and tax exempt interest) of between $32,000 and $44,000 you may have to pay income tax on up to 50% of your benefit. If your combined income is over $44,000 you may have to pay taxes on up to 85% of your benefit.
The decision on when to take Social Security can be very complicated and these are just a few of the many factors that should be taken into consideration.
Jane M. Young, CFP, EA
Here are a couple issues on Social Security and IRA Rollovers that frequently catch people by surprise.
Think twice about taking your Social Security at 62 or before your regular retirement age, if you plan to work during this timeframe. In 2011, if you earn more than $14,160, Social Security will withhold $1 for every $2 earned above this amount. However, all is not lost, when you reach full retirement age Social Security will increase your benefits to make up for the benefits withheld. Once you reach your full retirement age there is no reduction in benefits for earning more than $14,160. However, the amount of tax you pay on your Social Security benefits will increase as your taxable income increases. This may be a good reason to wait until your full retirement age or until you stop working to begin taking Social Security.
If you are thinking about moving your IRA from one custodian to another I strongly encourage you to do this as a direct transfer and not as a rollover. We frequently use these terms synonymously but I assure you the IRS does not! A transfer is when you move your IRA directly from one IRA trustee/custodian to another – nothing is paid to you. A rollover is when a check is issued to you and you write a second check to the new IRA Trustee/Custodian. This must be done within 60 days or the transaction is treated as a taxable distribution. You can do as many transfers as you desire in a given year. However, you can only do one rollover per year, on a given IRA. This is a very stringent rule and there are very few exceptions even when the error is out of your control. Whenever possible be sure to use a direct transfer not a rollover to move your IRA Account.
Please join us at Pinnacle Financial Concepts, for our first Fireside Chat of 2011. This is a great opportunity to join us in a very relaxed atmosphere to ask questions, and get prepared for filing your tax return. On Thursday, February 10, from 7:30 to 9:00 a.m. our topic will be “There’s No Such Thing as a Stupid Investment Question” with a bonus (apologies to David Letterman) of “The Top 10 Things to Think About During Tax Season”. We’ll have a basic overview of investment definitions and things to know about investments to spur a discussion on the topic.
Please call 260-9800 x2 to reserve your spot at this chat. There is no charge, but we will limit the number of available seats and schedule an overflow date if needed. Free coffee and donuts will be served and, as always, this is purely educational, no selling!!
You and a guest are invited to a Financial Fireside Chat with Jane and Linda at our office, from 7:30 – 9:00 am on Thursday, December 2nd to discuss “Year End Financial Planning Tips and Money Saving Ideas for the Holidays.”
A Financial Fireside chat is an informal discussion over coffee and donuts, where our clients and guests can learn about various financial topics in a casual non-threatening environment. This is free of charge and purely educational. There will be absolutely no sales of products or services during this session. We will provide plenty of time for informal discussion.
The Fireside Chat will be held at the Pinnacle Financial Concepts, Inc. offices at 7025 Tall Oak Drive, Suite 210. Please RSVP with Judy at 260-9800.
We are looking forward to seeing you on Thursday, December 2nd to learn about and discuss some great year end financial planning ideas.