One of the toughest choices for Americans approaching retirement is when to start taking Social Security benefits. You can claim as early as age 62, but waiting longer to file can boost your eventual monthly payments substantially. Although most of the advice you'll see suggests that waiting past age 62 is the smartest decision, there are some situations in which filing as early as possible is in fact the best move.
Situation 1: If the Windfall Elimination Provision will affect your retirement benefits
For most workers, the Social Security Administration won't cut your benefits even if you have outside sources of retirement income from an employee pension. However, for public employees who didn't pay Social Security payroll taxes throughout their careers and instead paid into a public pension plan, the Windfall Elimination Provision can reduce what you'll get from Social Security.
If you paid Social Security taxes for fewer than 30 years during your career, then your Social Security benefits are subject to reductions of up to half your government pension payment. The reduction is subject to a maximum of $428 per month for 2016 for those who worked 20 or fewer years in the Social Security system, and that maximum slides downward for those with 21 to 29 years of Social Security payroll tax-paying employment.
This reduction only takes effect when you start receiving your government pension. For some public employees, pension payments don't start until age 65 or later, so claiming Social Security at 62 can give you three or more years of unreduced payments. Depending on the size of your Social Security benefit and your pension, the fact that you can avoid the Windfall Elimination Provision for a while can offset the fact that you'll get smaller payments throughout your retirement.
Situation 2: If the Government Pension Offset will affect your spousal benefits
A situation similar to the one above occurs for those seeking to claim spousal benefits based on their spouse's work history. If you receive a government pension based on wages on which you didn't pay Social Security payroll tax, then the Social Security Administration will use the Government Pension Offset to reduce any spousal benefits you're entitled to receive. In general, spouses of eligible workers are entitled to spousal Social Security benefits.
The Government Pension Offset can be more draconian than the Windfall Elimination Provision. Your Social Security benefits will be reduced by two-thirds of your pension amount, with no maximum limit. That means some spouses end up getting no spousal benefit at all because of the Government Pension Offset.
Like the Windfall Elimination Provision, the Government Pension Offset only applies once you start receiving your government pension. Therefore filing for Social Security early can sometimes get you at least a few years of spousal benefits before the Government Pension Offset reduces or eliminates them.
Situation 3: You have a terminal illness, and your decision won't harm surviving family members
Part of the reason why Social Security payments are lower if you file earlier is that the Social Security program factors life-expectancy assumptions into its payment formula. If you know you won't live long enough to take benefits at full retirement age or later, then claiming early Social Security is your best way to get at least some money from the program.
It's important to remember that your filing decisions can affect a surviving spouse and children, so you should check to see how filing early will affect any survivor benefits your family would be eligible to receive. For many retirees, though, their decision won't have an adverse impact on family members, so it makes sense to file early and get something from Social Security.
Claiming Social Security at 62 isn't always the right answer. But in these situations, defying the general rule and taking your benefits as soon as possible could be the smartest possible move.
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