The oldest of the baby boomer generation is eligible to collect Social Security in 2012.
More than 75 million babies were born in the United States between 1946 and 1964. Now, those children, often referred to as baby boomers, are coming of age and thinking about retirement.
In fact, 2012 is the first year the oldest of the bunch are eligible to collect.
While the politicians and financial analysts debate whether there will be enough money in the system to sustain it, millions are learning that true retirement may be a thing of the past.
The latest advice for those reaching and nearing that magic age of 66-plus is to stay employed as long as you can. Even Social Security officials say so.
To make the best decisions about how Social Security fits into a retirement plan, experts advise to learn as much as you can.
The year of your birth
Americans who have worked at least 10 years most likely will fulfill eligibility requirements to receive Social Security. The bigger question for many is when can I start getting benefits?
According to the Social Security Administration’s website, www.ssa.gov/pgm/retirement.htm, people born in 1944 or earlier are already eligible to receive Social Security. People born between the years of 1943 and 1954 can retire and receive full benefits at age 66. For everyone else, the age of eligibility for full benefits increases with your birth year.
For example, those born in 1955 must wait until they’re age 66 and 2 months to collect full benefits. People born in 1956 must wait until they’re 66 and four months old and so it goes until the birth year of 1960. People born in 1960 must wait until age 67 to receive full benefits.
People who need to retire early, for health reasons for example, can do so at age 62 and still collect a Social Security check, but it will be 25 percent less than it would be if they wait. People who stop work before age 62 won’t be eligible for benefits, and when they do reach 62, they’ll probably receive less because they stopped paying into the system.
People who need to stop work early due to health reasons can apply for Social Security disability benefits, which, if they qualify, would be paid until retirement age.
Working past retirement age
Social Security officials say there are two ways for people who work past their full retirement age to increase the amount of future benefits. People who work longer add to their earnings record. Higher lifetime earnings mean higher benefits.
And, benefits increase from the time you reach retirement age until you start receiving benefits or reach age 70. The percent of increase depends on your birth year. People born in 1943 or later receive an 8 percent per year boost to benefit amounts for each year a person delays collecting benefits beyond the year of eligibility for full retirement.
A personal decision
No matter whom you talk to, most will say deciding when to retire is a personal decision. And, for many Americans, the when is all about the money.
Some want to retire as soon as possible and are willing to receive a smaller paycheck over a longer period. Others choose to wait a few years, so they’ll get a bigger benefit over fewer years.
Health and family longevity factor into deciding the best time to retire, as does your financial situation. Some people simply can’t afford to retire.
Officials advise that Social Security will pay about 40 percent of what a person made while working. People who need more money will need to rely on pensions, savings and investments. Or, they can continue to work.
According to the SSA, “When you reach your full retirement age, you can work and earn as much as you want and still receive your full Social Security benefit payment.”
People younger than full retirement age whose earnings exceed a certain dollar amount will have some benefit payments withheld.
“This does not mean you must try to limit your earnings,” the SSA says. “If we withhold some of your benefits because you continue to work, we will pay you a higher monthly benefit amount when you reach your full retirement age. In other words, if you would like to work and earn more than the exempt amount, you should know that it will not, on average, reduce the total value of lifetime benefits you receive from Social Security – and may actu-ally increase them.”
Social Security benefits are paid according to how much you earn. Higher lifetime earnings net bigger checks. People with years of unemployment or low employment may receive lower benefits than people who had steady employment.
Planning for the long term
Statistics show that about one in four 65-year-olds will live past age 90, and one in 10 will live past age 95. Generally, women live longer than men do. Social Security benefits will last as long as you live, other sources of retirement may not – experts advise people to plan accordingly.
For married couples, retirement timing becomes a bit more complicated. For example, early retirement could lessen the amount your spouse would receive if you die. If you wait until you’re eligible for full retirement, your spouse most likely would receive full benefits after your death. This is especially important if one spouse has had higher earnings during their lifetime. You want to plan so the surviving spouse can get the most benefits.
Widows and widowers can receive Social Security benefits at age 60, or age 50 if they are disabled. An SSA example shows a woman receiving a widow’s benefit at age 60 or 62 and then receiving benefits based on her own earnings record when she becomes eligible for full retirement. The rules vary for widows and widowers and include factors such as age, disability, and care for dependent children.
Benefits between the spouses
People who have been married to the same person for at least 10 years can choose to receive benefits based on their own earnings or receive payments equal to or up to 50 percent of their spouses’, if the spouse was the higher-lifetime earner. A person can decide to delay receiving their own benefit from age 66 to 70 to get higher earnings from their own fund.
Note: for a spouse to receive benefits from another spouse’s fund, both spouses must apply to receive benefits. Then the spouse that wants to delay can ask to have the benefits suspended.
A divorced spouse of a marriage that lasted at least 10 years can receive benefits from their former husband or wife, starting at age 62 as long as they don’t remarry and their ex is eligible for higher benefits.
Making the most of the benefits between spouses may be tricky and you may want to seek the advice of a professional or SSA employee.
Just because you’re on Social Security doesn’t necessarily mean you won’t pay income taxes on your benefits. The SSA says, for 2012, Social Security recipients who have individual or combined income between $25,000 and $34,000 may have to pay taxes on 50 percent of the benefits received and 85 percent if your income is more than $34,000.
Combined income is defined as the sum of the adjusted gross income plus nontaxable interest plus 50 percent of your Social Security benefits.
People who file a joint return may have to pay taxes on 50 percent of benefits if the combined income of you and your spouse is between $32,000 and $44,000. If together you earn more than $44,000, up to 85 percent of your Social Security benefit can be subject to income tax.
People who make enough money to have to pay income tax, who are not required to have federal taxes withheld, are advised to consider paying estimated quarterly tax payments.