Ethan R. Okura
Hawai‘i Herald Columnist

If you are about to retire, I have some good news — and some not so good news — for you.

The good news is that as a result of advances in science and health care treatments, today’s generation of retirees is living longer than ever before. At age 65, the average man can expect to live another 19 years, and the average woman 22 more years! The not-so-good news is that with longevity comes more years of retired life, so we have to make the savings we accumulated during our working years stretch even further and, of course, lose more of its value to inflation.

One of the most important decisions a retiree will make is when to start collecting Social Security benefits — before full retirement age, at full retirement age, or later? Choosing the best time to apply for Social Security could make a difference of $100,000 more in retirement benefits over your lifetime — $250,000, if you are married.

Full retirement age (“FRA” in Social Security lingo) used to be 65. FRA is when you are entitled to 100 percent of your retirement benefit. However, because people are living longer, the Social Security Administration has been increasing the retirement age to help the federal budget. If you were born in 1937 or earlier, your FRA is still 65. Add two months to that retirement age for every year after 1937 until 1943. If you were born between 1943 and 1954, your full retirement age is 66. If you were born in 1960 or later, your FRA is 67.

You can choose to retire early, from as young as age 62, but it will result in your receiving reduced Social Security benefits permanently. For example, if your FRA is 66 and you choose to retire at age 65 instead, your monthly benefit will be reduced by 6.7 percent, by 13.3 percent if you retire at 64, by 20 percent if you retire at 63 and by 25 percent if you retire at age 62.

On the other hand, if you delay receiving Social Security benefits until you are older, your future benefit will permanently increase anywhere from 5.5 percent to 8 percent every year that you delay applying, depending on the year you were born. For example, if you were born in 1943 or later, your FRA is 66. You could increase your monthly benefit by 32 percent just by waiting until you are 70 to start claiming Social Security benefits. However, there’s no point in waiting past age 70 to claim benefits because they will not increase any further after that age.

Some of the factors that go into the decision-making process of when to claim Social Security may include: 1) your health, genetics and expected longevity; 2) availability of other assets to help cover your lifestyle expenses until you can claim at FRA; 3) your financial needs; and 4) whether you will continue to work after age 62 up until your FRA.

If you decide to keep working after applying for early retirement benefits, you will suffer the permanent reduction of benefits described above and you will also be subject to an “earnings limit,” which can reduce your benefits even further. Prior to your FRA, you can work and earn up to $17,640 per year without having your benefits reduced further. For every $2 you earn above that amount, $1 in monthly benefits will be withheld. In the year when you will reach your full retirement age, you can earn $46,920 without having benefits withheld. For every $3 more than that, your benefit will be reduced by $1 until the month that you actually reach your FRA. After that, the “earnings limit” will not apply to you — your monthly benefit will be increased to compensate for earnings limit withholdings prior to reaching FRA. However, keep in mind that the reduction in monthly benefits for choosing to retire early is permanent and will never restore you to your scheduled 100 percent FRA benefit amount if you choose to retire early. Additionally, you may also be subject to a tax on up to 85 percent of your Social security benefits depending on your income and marital status.

In general, if you are deciding whether or not you should delay claiming benefits from age 62 to age 66, your break-even age will be just before 78 years old. In other words, if you live past 78, you made more money by choosing to delay receiving benefits. If you delay claiming your benefits from age 62 to 70, your break-even age is just before age 81. And, finally, deciding to delay from age 66 to age 70 puts your break-even point at just before your 83rd birthday.

As a final note, even if you decide that it’s worth waiting to claim your Social Security benefit until after age 65, in general, it’s a good idea to sign up for Medicare at age 65. If you sign up later than age 65, you might end up paying higher Part B and Part D premiums.

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Ethan R. Okura received his doctor of jurisprudence degree from Columbia University in 2002. He specializes in estate planning to protect assets from creditors, probate, estate taxes and nursing home costs.

This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.


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