Peter and Patricia

FIN 447

Social Security

Peter and Patricia Morgan

There are several factors to consider when someone is planning to retire. One of the biggest factors is when to start collecting on Social Security. Social Security can be quite complicated. While you are working you earn credits towards being eligible to claim benefits from Social Security. If you work full-time for one year you earn four credits. Forty credits are needed to qualify for Social Security benefits. So if you work full-time for ten years you are eligible for benefits. However, you can claim credits for part-time work at a slower rate. Also, the more you earn and the longer you work, the more you pay into Social Security and therefore the larger your benefits will be when you retire. Your benefits are based on your work history.

Social Security benefits are maximized when a full retirement age has been reached as specified by the government. This full retirement age is between 65 to 67 years old, which is based on the year you were born. Regardless of your full retirement age you will be eligible to receive benefits as early as age 62. However, if you choose to receive benefits before your full retirement age, you will receive a reduced monthly benefit. You also have the option of waiting up until the age of 70 to collect the largest amount of benefits available. If you choose to take your benefits early at age 62 it would mean a 25% reduction of your full benefits and if you choose to wait until age 70 it would mean up to a 30% increase in your benefits. Full benefits (100%) are received when you reach your full retirement age. In Peter’s case this age would be 66. Since these benefits will continue for the remainder of your life (or your spouse’s life) it can have a big impact on your financial outlook.

Let’s start with Social Security benefits. Peter Morgan, age 62, is eligible to collect on Social Security at his current age. If he was to start collecting benefits now...