I’m planning to retire at 62, but I won’t collect Social Security until I’m 67. Will I still get increased benefits even though I hadn’t worked the last five years?
(BARRON’S).- The short answer is yes. Retirees who begin collecting Social Security at 62 instead of at the full retirement age (67 for those born in 1960 or later) can expect their monthly benefits to be 30% lower. So, delaying claiming until 67 will result in a larger monthly check.
Working until age 67 also could increase your Social Security benefits, especially if you have a high salary or have gaps in your work history. Social Security benefits are calculated using your average indexed monthly earnings during the 35 years in which you earned the most money. Working fewer than 35 years results in a lower monthly benefit because you would have years that count as zero. Once you’ve hit the 35-year threshold, working until 67 could raise your monthly benefit by increasing the average amount you earned during your 35 best years.
However, the increase in benefits by working until 67 either to fill in gaps in work history or to maximize high earnings likely would be “nominal,” according to Ryan Shuchman, an investment advisor at Cornerstone Financial Services.
To illustrate this point, Shuchman considered a typical 62-year-old worker who made $85,000 last year and plans to collect Social Security at 67. If that employee works until 67 in order to meet the 35-year threshold, his monthly Social Security check likely would be about $140 higher, he says. But if that employee already has worked 35 years, then working until 67 likely would increase his monthly benefit by less than $90, he says.
“If you’ve hit the 35-year threshold, I would say continuing to work has a nominal impact,” Shuchman says.
Q: What’s a tax-efficient way to protect the holdings in my taxable investment account from inflation?
Savers with a moderate risk tolerance should consider blue-chip stocks that offer qualified dividends or an exchange-traded fund made up of those companies, Shuchman says.
Qualified dividends are subject to tax rates for long-term capital gains, while ordinary dividends are subject to regular income tax rates. Verizon VZ+0.47% and Pfizer PFE-0.76% are examples of companies that are “very healthy in terms of their financials and also provide that qualified dividend,” Shuchman says.
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