# Readers' feedback on Social Security

March 12, 2012|Eileen Ambrose

My column on Social Security got a big response from readers.

One of the points made is the big reward retirees can get by postponing benefits until 70, if possible. Waiting an extra four years from full retirement age, now 66 for many, to 70 would generated an 8 percent annual benefit: or 32 percent higher than taking it at 66.

Some disagreed saying people die early and should take it early:

But according to life expectancy tables, thank you About.com, there’s a good chance of living beyond 79 and a half.

Steven of Owings Mills wrote:

“You mentioned nothing about the money a person "would not receive" by waiting to begin their benefits at age 66 versus age 62 or at age 70 versus 66.  I've been doing the math for the past 5 1/2 years and it goes like this; assume (and I hate using that word), for a moment, that one's benefit at age 62 was \$1500 and at age 66 would be \$1950 (by the way, the math is the same for waiting to begin benefits at age 70 instead of at 66).  In this example, by waiting four years to begin receiving benefits, the money "not received" would \$72,000 (48 X \$1500).  Dividing the \$72,000 by \$450 (the difference between benefits by waiting till age 66) equals / results in the number 160.  That's the number of months a person (who waited till age 66 to begin benefits) will have to live beyond age 66 JUST TO BREAK EVEN by not beginning benefits at age 62.  That's 13 1/3 years.  What a gamble!!”

The longer you live, the greater the likelihood you will live longer. Thanks to life expectancy information on About.com, the life expectancy of someone who made it to 65 is  83.4 years.  If a woman makes it to age 75, she is expected to live until 87.6.  A 75-year-old man is expected to make it to 85.5.

“For federal taxes, those who start social security early have more years where they may have little or no taxable social security income. If a person has even a modest pension, and/or an IRA or 401-K where they can make withdraws in order to delay social security, I can pretty much guarantee that with a higher SS payment they will have a significant portion of their SS income taxed by the IRS. As the IRS requires minimum withdraws from IRAs and 401-Ks starting at age 70 ½, these added dollars will result in an increased taxable social security income.

“For Maryland taxes it’s not quite as straight forward. No social security income is taxable by the state, but it does factor into the pension exclusion calculation which starts at age 65. For those who start SS early, their smaller “total” SS income will most likely allow them some pension exclusion in all future tax years. However, the same may not be true for those with the much higher SS income. I may be wrong on this, but I believe the maximum pension exclusion amount used by the state is based on the maximum SS payment available at “full retirement age” for that tax year. If someone starts SS at age 70, their much higher SS income may very well exceed the maximum exclusion allowed by the state, and hence, no pension exclusion for their Maryland taxes.”

AARP says 70 percent of beneficiaries don’t pay taxes on benefits. But alas, even retirees have to pay taxes sometimes. And I think it’s better to get a bigger benefit and cost of living adjustments on a bigger sum, even if it means some of it might be taxed. One tax expert I spoke with said retirees are so tax adverse that they sometimes prefer making no earnings on their money, just to avoid taxes on the gain.

And then, of course, there’s another theory as to why people are being encouraged to postpone benefits.

From SSGRAM1951: “One more thing, why not tell the people the government really wants them to wait til full retirement age is really a bet that they will die before reaching the full age.”

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