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Wall Street Journal / Biz - Money

The One Reason You Should Claim Social Security at 62

The conventional wisdom says to wait. But at least one counterargument is hard to refute.

Working just one or two additional years, or going part-time, often can do wonders for a nest egg and allow people to delay claiming Social Security benefits.

Have you spoken with many retirees who have claimed Social Security benefits at age 62? Almost everything I read and hear tells me not to do this and, instead, to wait as long as possible. It would be interesting to hear the other side, especially since so many people don’t seem to wait.

I am certainly in the “wait” camp. But yes, I have heard from and spoken with a number of people who grabbed Social Security at 62, the earliest possible age for most. (Benefits at 62 are roughly three-quarters of what they would be at a person’s “full retirement age,” as defined by the Social Security Administration.) One argument in particular stands out as a valid reason for leaping early. But before we get to that…

Many retirees claim benefits at age 62 simply because they need the money; they’re unable to work or they want to enjoy retirement while they’re still relatively young, and their nest egg alone can’t support them. Others are worried about the health of the Social Security program and want to get at least some benefits before the system “runs out of money.” And some individuals apply early because they want to invest the funds; they calculate that their finances will come out ahead if they put their Social Security checks to work in the markets.

Are all these people wrong—or foolish? Of course not. It’s just that the counterarguments tend to be equally, or a bit more, persuasive.

Need the money? Working just one or two additional years, or taking a part-time job, can frequently do wonders for your nest egg and allow you to postpone claiming benefits.

Anxious about Social Security collapsing? Yes, the program is facing a financial shortfall, but it will never go broke. (The federal government—and I don’t think I’m going out on a limb here—will always collect taxes, and part of that revenue will always go to the Social Security program.)

Planning to invest your monthly payouts? Few people can beat, with any regularity, the guaranteed financial returns that come from delaying benefits.

Which brings us to the one reason for claiming benefits early that’s tough to argue with: poor or questionable health. Consider this recent blog post from Debbie Galant, publisher of a wonderful website about growing older titled Midcentury Modern.

“A month ago I decided to apply for Social Security. When I put it on Facebook, several friends wrote me privately, to see if I’d lost my mind. Because, as everybody knows, you’re supposed to wait as long as you can to pull Social Security—so you can get a bigger check. And I’m only 62.

Benefit Bumps

A person who turns 62 in 2018 will reach full retirement age at 66 and fourth months, according to Social Security. If the monthly benefit at full retirement age is $1,300, this person would be eligible to collect the following at various ages:

Full monthly

benefit begins

1,681

1,577

1,473

1,369

1,300

1,184

1,097

1,018

$953

62

IN 2018

63

64

65

66 YRS.,

4 MOS.

67

68

70

69

Full monthly

benefit begins

1,681

1,577

1,473

1,369

1,300

1,184

1,097

1,018

$953

66 YRS.,

4 MOS.

65

68

64

63

62

IN 2018

67

69

70

Full monthly

benefit begins

1,681

1,577

1,473

1,369

1,300

1,184

1,097

1,018

$953

69

67

63

68

64

62

IN 2018

70

66 YRS.,

4 MOS.

65

1,681

Full monthly

benefit begins

1,577

1,473

1,369

1,300

1,184

1,097

1,018

$953

64

65

66 YRS.,

4 MOS.

67

68

70

69

63

62

IN

2018

Source: Social Security Administration

“But I’m not crazy. There’s an iron logic in my decision. I’m taking my Social Security early because that’s $1,400 less a month I have to worry about making. I’m taking Social Security early because I had cancer two years ago, and…cancer taught me that life is not a Google calendar with an infinite number of slots to fill. Life is finite. So I’ll give up some stuff—and the promise of more money later—for more freedom now to spend my time as I wish.” (I urge you to read Ms. Galant’s entire post at midcenturymodernmag.com.)

Granted, even the health argument isn’t foolproof; you might be unwell, but every month you’re able to delay claiming Social Security means a larger survivor’s benefit for your spouse (if you die first). On balance, though, an expectation that your life expectancy could be shorter than average is one reason to collect benefits sooner rather than later. Otherwise, I hope you will give the arguments to delay filing for Social Security the benefit of the doubt.

Both my wife and I have individual retirement accounts. I will turn 70½ this year. She is 69. If I start taking required minimum distributions from my IRA and then die before she is 70, and if she inherits my IRA, does she have to continue with my RMDs? Or do the RMDs “stop” until she turns 70½? And if she has to continue, how is that calculated?

If you die after beginning RMDs, and if your wife is your beneficiary, she must first withdraw any part of your RMD for the year of death that hasn’t already been withdrawn, says Ed Slott, an IRA expert in Rockville Centre, N.Y.

Once that is done, she can then roll over your IRA balance to her IRA (a spousal rollover), and she will begin taking RMDs when she reaches 70½, based on her age each year.

Technically, a spouse has the option of remaining a beneficiary, rather than doing a spousal rollover, and wouldn’t have to begin RMDs until the deceased spouse would have reached age 70½, Mr. Slott notes. But that wouldn’t provide any advantage in your case since you will be age 70½ this year.

My husband, who is retired, turned 65 in May and went on Medicare. He has a health savings account. We had been in his company’s retiree medical high-deductible plan for the first four months of the year, and I (with a few years before I reach 65), remain covered under that plan. My question: What contributions, if any, can we make to an HSA in 2018?

Once a person is enrolled in Medicare, he or she can no longer contribute to an HSA. But given that your husband wasn’t enrolled from January through April, he can still contribute one-third (or four months’ worth) of the annual limit of $7,900, says Roy Ramthun, a consultant who specializes in high-deductible plans and HSAs. That amounts to $2,633. (Note: The annual contribution limit is $6,900 for individuals covered under qualifying family medical plans. If you’re 55 or older in 2018, you can contribute an additional $1,000.)

As for you, you must set up an HSA in your own name, he says. The annual contribution limit for people with single medical coverage is $3,450. Given that you will have coverage from May through December, your contribution limit is $3,450 x 8/12 = $2,300. And because you appear to be 55 or older, you can also make a $1,000 catch-up contribution, bringing your total to $3,300. (Because you are eligible to contribute to an HSA for all of 2018, you wouldn’t have to prorate your catch-up contribution like your husband.)

Combined, says Mr. Ramthun, you and your husband would be able to deduct $5,933 (or $2,633 + $3,300) on your 2018 income-tax return.

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