Social Security

I did not know this!

To recap, a person is allowed to decide when to start drawing Social Security payments from the government. You can get them at 62, at 70, or anyplace in between. There is an obvious attraction to getting it sooner rather than later, and about 45% of those eligible choose to start getting the checks on their 62nd birthday.

The reason that the other 55% hold off is that the older you are when you start, the bigger the checks become. The payments for a person starting at 70 are about 70% higher than for a person starting at 62. (But relatively few hold out all the way until 70. The median age is 63.)

That trade-off, forgoing some years of payments to make the size of those payments bigger, sets up an interesting little finance problem which I discussed a year ago with the help of some annuity prices I found on-line. (It’s a good post. Here’s another link.)

The main conclusion from my analysis was that, unless you know you are likely to shuffle off your mortal coil earlier than actuarially expected, you should hold out until age 70. In other words, most Americans get this wrong.

But with the addition of a tidbit from the Smart Money article, I now realize that there is a good argument for starting at 62. I’ve known for a while that seniors can elect to “reset” the year they start taking benefits by paying back what they got before the new start date. So a 70-year-old who started getting checks at 62 can pay back eight years of benefits and start getting much larger checks from then on. What I didn’t realize, and what stupidly never occurred to me, is that the paying back is without interest.

The Smart Money article refers to this, in passing at the very end, as an interest-free loan from the government. I can’t remember a more deeply buried lead.

And it is more than just an interest-free loan. It is also a free option. The downside risk for waiting until age 70 to collect benefits is not subtle. You might not live that long. Kick off the day before you turn 70 and you get nothing. But start at 62 and you can have it both ways. Draw checks for eight years and if you are still in reasonably good health, pay it back interest-free and reset. If not, well, you got some money from the feds while you could.

4 thoughts on “Social Security

  1. Most people take Social Security at 62 because they have no other choice and no pension.

    You might want to mention the penalty of earned income IF you decide to take Social Security ‘early’. It goes away once you reach 66. But what it does mean that once you go over the earned income ‘cap’ about $14,000, they take away $1 for $2 you get in Social Security, condemning many of those at 62 or over who CANNOT FIND WORK. This is rarely mentioned and nothing is being done about it. I have contacted my inept Congressional reps from Arizona to no avail.

  2. Can you explain that a bit more? If I take SS at 65 because, well, I have to, does that mean I get penalized once I get to $14K in SS payments? Or only if I get a job?

    I’m confused.

    Now, at sometime after 62 can I say I”d like to have started at be and get all the payments I missed?

  3. $14,000 in income. You can make up to 14G, then your benefits start reducing, one dollar for every two you earn. I suspect at some point you also become ineligible for medicare.

  4. I started collecting SS at 62 because health problems made it difficult for me to work for a while. Eventually, I started working part-time. What a shock when I was billed by SS the following year for ≈$1,300: pay back $1 for every 2 earned over the then stipulated earned income cap of ≈$13,000 while collecting SS. I had not realized that. The next year I earned even more and had to pay back more than that. And this year I had to pay them 2700… So I did some calculating and risk assessment and decided to pay back all that I have collected so far. I had enough in savings to do that, and decided it was a better return than anything in the stock market. I figured the payback time at about 6.5 to 7 years. I’m planning on reapplying for SS again when I turn 67; the difference in the monthly amount for me will be about $330 more. That’s alot. I was never a high earner, anyway, so my SS checks would never be the max.

    And no, you are eligible for Medicare when you turn 65, whether you are on SS or not. You just have to pay the premium quarterly, since it would not be taken from your monthly SS check ($96 and change).

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