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Applying for early Social Security benefits

Posted by Andrew Chan  April 23, 2009 10:00 AM

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I turn 63 on July 1st. I am looking at drawing my Social Security but continue to work. I make $28,000 dollars a year. What would I receive in payments? Also, if I work until I'm 70, how much would my Social Security benefits be at age 70.

The dollar amount of Social Security retirement benefits that you are entitled to is calculated based on your earnings history. Specifically, it is based on your highest 35 years of "indexed" earnings. Indexed earnings are your actual earnings each year that have been adjusted to make them comparable to wages earned today. Also, the retirement benefits you are entitled to increase if you wait until you reach your Full Retirement Age (FRA) to start receiving your benefits. If you wait until after your FRA to start receiving retirement benefits, you will earn Delayed Retirement Credits which will increase your benefits. Without knowing your specific earnings history, it would not be possible to estimate your Social Security benefits.

That said, I can tell you that based on the information in your question, if you begin receiving your benefits before your FRA (which is age 66) and you are earning $28,000 dollars per year, those benefits will be reduced and potentially taxed.

Receiving Social Security retirement benefits before your FRA (i.e., early retirement) permanently reduces the benefits that you receive. The actual reduction is based on how soon before your FRA you start receiving benefits. If you start your benefits at age 63 and your FRA is age 66, your benefits will be approximately 20 percent less than the amount you would have receive at your FRA.

In addition, to the "early retirement" reduction, your benefits may be further reduced because your earnings exceed the Social Security Administration's retirement earnings limit. Those who receive early retirement benefits and earn more than $14,160 dollars in 2009, will have their benefits reduced by $1 dollar for every $2 dollars of earning above the $14,160 limit. Therefore. your 2009 early retirement benefits will be reduced by about $6,920 dollars ([$28,000 - $14,160] / 2). This reduction will change each year depending on the amount you earn and the retirement earnings limit imposed by the SSA.

Another potential disadvantage of taking early retirement benefits and having non-social security earnings is that your social security benefits may be taxable. Depending on your tax filing status (e.g., single, married filing jointly, married filing separately) and your adjusted gross income, you may need to include up to 85% of your social security retirement benefits as income for federal tax purposes. Taxation of your social security benefits will change each year depending on your earnings.

Generally, I would suggest against taking social security benefits before your FRA if you have earnings above the retirement earnings limit unless you need the money for current living expenses.

This blog is not written or edited by or the Boston Globe.
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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
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