The benefits you receive from Social Security are calculated by taking the average of your monthly earnings during your 35 highest paid years in the workforce, adjusting them for inflation and applying a special formula. Your age when you apply for these benefits determines how much you receive every month. You have the option anytime between age 62 and 70 to start taking those benefits, but USA Today presents some things to consider in the article “Here are 3 awful reasons to take Social Security benefits at age 65.”
What’s Your Full Retirement Age (FRA)? Don’t confuse the year you start taking Social Security benefits with the year you become eligible for Medicare. For people born between 1943 and 1954, FRA is actually age 66. Born between 1955 and 1959? That puts you at 66 and a number of months, depending on your birthday. If you were born in 1960 or later, you won’t reach your FRA until age 67.
Why not wait? If you apply for Social Security at age 65, you’ll actually cut your monthly benefits between 6.67% and 13.34%, depending on your FRA. Are you ready to give up that much, after you’ve paid into this system for so many years? Find out what your FRA is, and then plan accordingly. A study recently revealed that only a quarter of all older adults know what their correct FRA is.
Worried About Medicare Coverage? As stated above, the two programs are separate, even though they feel linked at times. Just because you sign up for Medicare, doesn’t mean you have to start taking Social Security benefits. You can be on Medicare for years before claiming Social Security, and it has nothing to do with how your Medicare coverage works.
The only drawback to signing up for Medicare before taking Social Security, is that you won’t have the option to pay Part B premiums directly from Social Security benefits. You will need to take care of that yourself, and you also won’t get the protection from Medicare’s “hold harmless” provision. This provision caps the extent to which your Medicare premiums can increase when you are collecting Social Security benefits. The increase in Part B can’t cause your monthly benefit to go down, but that’s only if you are collecting Social Security.
To be clear, if your annual cost-of-living-adjustment, or COLA, raises your monthly Social Security benefit by $12, but the Medicare premium increases by $13, you will only have to pay the $12. The reduction you face in benefits by claiming early, far outpaces any increase in Part B premiums.
Is Social Security Going to Be Around When You’re Ready? This is something that many almost-retirees worry about. Don’t. Remember that Social Security is funded by payroll taxes, so even through there are some real concerns, the program is not going away. The worst-case scenario is a potential 20% cut in benefits in 2035, but that’s only if lawmakers do nothing to fund Social Security. Historically, lawmakers have always helped out, when Social Security needed it.
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Reference: USA Today (Nov. 14, 2019) “Here are 3 awful reasons to take Social Security benefits at age 65”