Are you nearing retirement age? If you’re like most doctor and dental practice owners, you’ve been consistently saving for retirement for years now. This means you have options when it comes to maximizing your Social Security benefits.
You can start receiving Social Security benefits at age 62; however, delaying benefits can result in a higher monthly income over the remainder of your life. In this article, we’ll explore when is a good time to take Social Security, helping you solidify your financial plan.
Remember, this article isn’t a substitute for professional advice. If you are looking for answers based on your specific financial situation, contact PBM to schedule a consultation.
Understanding Full Retirement Age
The Social Security Administration bases benefits on full retirement age. If you were born in 1954 or earlier, full retirement age is 66. For each year after 1954, the Social Security Administration adds two months to full retirement age to account for longer life expectancies, up to age 67. For example, if you were born in 1959, full retirement age would be 66 years and 10 months. Anyone born in 1960 or later will have a full retirement age of 67.
If you elect to start taking Social Security benefits at age 62, your benefits will be reduced by the months between your start age and full retirement age. Social Security benefits are reduced by 5/9 of one percent for each month before full retirement age up to 36 months. If you take benefits more than 36 months before full retirement age, your benefits are further reduced to 5/12 of one percent per month. The maximum reduction for Social Security benefits is 60 months or up to 30%.
It’s important to note that Social Security benefits should be claimed before age 70 is reached. Benefits do not increase past age 70, and neglecting to apply can result in thousands of dollars in lost income. Additionally, you should sign up for Medicare at age 65. Delaying taking Medicare at age 65 can result in higher premiums.
Full Retirement Age Example
Let’s say you were born after 1960, making your full retirement age 67. You are trying to decide when to start taking Social Security. Here’s how your benefits will be reduced each year:
- Age 62 – 30%
- Age 63 – 25%
- Age 64 – 20%
- Age 65 – 13.30%
- Age 66 – 6.70%
- Age 67 – 0%
Delaying your benefits until full retirement age allows you to maximize your monthly income. Many dentists and doctors have other streams of income they can utilize until full retirement age is reached. Similarly, for each year past age 67 you delay drawing Social Security, your benefits increase by 8% per year up to age 70.
Other Factors to Consider
The decision to delay taking Social Security benefits requires careful consideration of your full retirement picture. Here are some other factors to consider:
Life Expectancy
Thanks to advancements in medicine, the average life expectancy continues to extend. Considering this factor, it can be beneficial to take Social Security once full retirement age is reached. This ensures you are maximizing your income potential over the course of your retirement.
Health
Health is another factor to work into your Social Security timing. If you are facing health problems, or you have reasons to believe you might not live well into your retirement age, having extra income at age 62 can be beneficial to offset medical costs. Nevertheless, if you are in good health, delaying does generate more monthly income over the long run.
Annual Earnings
It’s not uncommon for dentists and doctors to stay on part-time after their practice sells. The Social Security Administration does reduce your benefits if your annual earnings exceed a specific limit. For 2024, the limit is $22,320 for individuals under full retirement age. If you exceed this limit, your Social Security benefits will be reduced by $1 for every $2 earned above the limit.
If you are over full retirement age, the 2024 annual income limit is $59,520. The Social Security Administration will reduce benefits by $1 for every $3 of earned income over the limit. Understanding this caveat is important if you will have part-time work in your practice post-retirement.
Survivor Benefits
Survivor benefits are also impacted based on when you take Social Security. Just like your individual benefits decrease for each year under full retirement age, survivor benefits do too. If you are looking to unlock a higher monthly income for your spouse, delaying benefits is crucial.
Conclusion
Determining the best time to take Social Security benefits depends on your situation. If you have other financial assets to support your lifestyle until you reach retirement age, delaying benefits can be a powerful factor in your monthly income. If you have questions about when is a good time to take Social Security, please contact us.
