Social Security – Discounts and Premiums
As farmers near retirement age, we continue to get several questions regarding whether they should take their benefits early (at age 62), or at full retirement age (currently age 66) or at age 70. The answer (like most tax questions) is it depends. If your family history is that most live to a ripe old age of 90 or later, then from an economic standpoint, it is almost always better to wait to age 70. That will maximize your total return. However, if your family history is that it is rare for anyone to live past age 80, then taking it at age 62 may be the best bet.
Most of the breakeven analysis indicates around age 80-82 is where everything breaks even. Before that age, taking it at age 62 returns the most. After that age, then taking it at age 70 creates the highest return.
However, remember that this might not be fully an economic equation. We are most likely to more fully enjoy the money during our 60s and 70s and be able to use it to travel, etc. When we hit our 80s and later, we might not be able to fully enjoy the extra money.
Another consideration is that if you retire before full retirement age, you can only make a certain amount (around $16,000) before you have to start paying your benefits back to social security. If you plan on working until at least age 66-67, it would likely make sense to wait to start collecting social security.
The chart below is a handy reference tool (you can click on it to make it larger). It shows how much your discount or premium would be between ages 62 and 70. Remember that the full retirement age right now is 66, but for those baby boomers born between 1955 and 1960, it phases up to age 67.
If you are nearing retirement age, take a look at the chart. It may help you decide when to start collecting social security. As always, this is a good time to discuss it with your advisor.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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