Benefit Reduction If Taken Before Full Retirement Age
When calculating benefits for early retirement, there are one or two calculations, depending on how early benefits are taken. Assuming a normal retirement age of 67, the age of 62 is the earliest year a person can receive benefits or 60 months early.
The benefit is reduced by 5/9 of 1% for each month before the normal retirement age , up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of 1% per month.
For example, let’s say that a person wants to retire at 62, leading to a 60-month reduction from the normal retirement age of 67. The first 36 months would be calculated as 36 months times 5/9 of 1% plus 24 months times 5/12 of 1%.
- First 36 months: 5/9 = .5555 * 1% = .005555 * 36 months = .19999 or 20%*
- Remaining 24 months: 5/12 = .416666 * 1% = .00416666 * 24 months = .0999 or 10%
- In other words, benefits would be reduced by 30% if taken at age 62.
*The results were rounded and multiplied by 100 to create a percentage.
Who Qualifies For Social Security At What Age Do You Qualify For Social Security Benefits
Nearly one in five Americans receives some form of benefit from Social Security. Almost 80 years after its initiation, Social Security remains a vital lifeline for large numbers of Americans. Consider
- Nearly 40 million people receive retirement benefits with an average monthly benefit of $1,335.
- Another 9.5 million people receive disability benefits with an average monthly benefit of $1,165.
- Nearly 90 percent of people age 65 and older receive Social Security benefits, representing nearly 40 percent of their income.
- One in five married couples and about half of unmarried elderly Social Security beneficiaries rely on Social Security for at least 90 percent of their income.
What If I Change My Mind
If you receive Social Security benefits at a reduced rate, but then change your mind, you have the option of withdrawing your application and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. But you are limited to one withdrawal per lifetime.
For example, let’s say you elected to receive early benefits at age 62, but then decided to go back to work at age 63. You could withdraw your Social Security application within the first 12 months of receiving benefits, pay back the years’ worth of benefits you received, go back to work, and then wait until a later age to restart your benefit checks at a higher level.
For important details about repaying benefits please read the SSA publication If You Change Your Mind.
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Why A Social Security Earnings Record Mistake Matters
A mistake in your earnings history can make a big difference in how your Social Security benefits are calculated. How? It all goes back to the benefits formula. The Social Security Administration uses your highest 35 years of earnings as a cornerstone of the benefit calculation. If any of these 35 years are incorrect or missing altogether, the average is skewed. One year of missing earnings can make a difference of $100 per month in your benefit amount. Over your lifetime, that could be nearly $30,000 in missed benefits from one year of missing earnings.
You need to check your Social Security earnings record today. Thankfully, its pretty easy to do.
Heres how to accomplish this in five easy steps.
Focus On Building Savings
There’s nothing wrong with trying to get as much money out of Social Security as you can. But don’t bank on snagging the maximum monthly benefit, because it’s really hard to get. Instead, do your best to build savings so that you don’t have to worry as much about what Social Security pays you.
Remember, too, that even if your earnings aren’t strong enough to help you score the highest possible Social Security benefit during retirement, delaying your filing until age 70 will result in a 24% to 32% boost to the benefit you are entitled to, depending on your full retirement age. And that alone could leave you with a nice monthly paycheck to look forward to.
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How To Apply For Social Security Benefits
The application process by itself is fairly easy and can be accomplished either online, by telephone or in person at a local Social Security office. Generally, people can apply for Social Security when they turn 62, but in many instances, it makes good financial sense to delay applying for benefits.
Social Security also provides benefits for spouses and children as well. Spouses who have not been high wage earners throughout their lives can actually piggyback off of their spouses earnings and draw as much as 50 percent of a retirement benefit using their spouses Social Security record. Certain rules do apply in this set of circumstances. Divorced spouses may also qualify for benefits if their marriage lasted for at least 10 years and they do not remarry before applying for benefits.
In addition, if children meet requirements, they can also apply for benefits from their parents Social Security work records as well. They may be eligible for funds if a parent passes away and they are under 18 and still in school.
Once a benefit amount has been set, that dollar amount cant go down, but it can go up, based on cost of living increases. Some benefit recipients may experience a temporary reduction based on income from other sources, but the base amount will always remain steady.
For an overview of Social Security and to start applying for retirement benefits, go to www.socialsecurity.gov or call Social Security at 1-800-772-1213.
How Should A Representative Payee Use A Beneficiarys Economic Impact Payment
Date: March 26, 2021
The EIP belongs to the Social Security or SSI beneficiary. It is not a Social Security or SSI benefit. A representative payee should discuss the EIP with the beneficiary. If the beneficiary wants to use the EIP independently, the representative payee should provide the EIP to the beneficiary. If the beneficiary asks the representative payee for assistance in using the EIP in a specific manner or saving it, the representative payee can provide that assistance outside the role of a representative payee.
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Earn Ssa Work Credits In Some Countries
You may not have enough credits from your work in the United States to qualify for retirement benefits. But, you may be able to count your work credits from another country. The SSA has agreements with 24 countries. If you earned credits in one of those countries, they can help you qualify for U.S. benefits.
Who Is Eligible For Social Security Retirement Benefits
The U.S. Congress passed the 1935 Social Security Act as a way to supplement retirement earnings for primary working Americans. The original law also included the nations first unemployment insurance program as well as several health and welfare programs. Shortly thereafter, the law was changed to add survivor benefits for spouses and children, and in 1956 disability benefits were also added.
The Social Security Administration now serves 60 million Americans who will receive $870 billion in benefits in 2015.
The administration of such a large benefits program can be complicated at times, with numerous special instances, exceptions and nuances that can impact how benefits are disbursed to recipients.
This guide will introduce applicants to the basics of applying for Social Security retirement benefits and answer many of the common questions that arise when first considering to apply for benefits.
It will also address many special circumstances that can arise involving spouses and children, specific circumstances regarding timing, amounts, and maximizing benefits while also offering a comprehensive list of resources that may prove valuable throughout the Social Security retirement benefits process.
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What About Taxes On Social Security
Keep in mind that Social Security benefits may be taxable, depending on your “combined income.” Your combined income is equal to your adjusted gross income , plus non-taxable interest payments , plus half of your Social Security benefit.
As your combined income increases above a certain threshold , more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
What Is The Future Of Social Security
If you’re skeptical about the future of Social Security or wary of potential changes such as means testingwhich could reduce or eliminate benefits for the wealthy, or an increase in the full retirement ageyou may be tempted to start benefits early, under the assumption that it’s better to have something than nothing. The 2021 annual report from the Social Security Trustees, released in August 2021, projects that the Social Security Trust Fund has enough resources to cover all promised benefits until 2034. Then, absent a change from Congress, the trustees project that benefits would need to be cut for all current and future beneficiaries to about 78% of scheduled benefits. The 2021 report includes the trustee’s best estimates of the impact from the pandemic, which were not reported on last year.
Over the longer term, changes such as later benefit dates or means testing may be considered.
In any situation, if you’re particularly concerned about the future prospects for Social Security, that’s a good reason to save more, and earlier, for your retirement.
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Is It Better To Take Ss At 66 Or 70
As you undoubtedly already are well aware, most financial planners recommend thatso long as you can afford to do soyou should wait until age 70 to begin receiving your Social Security benefits. Your monthly payment in such an event will be 32% higher than if you begin receiving benefits at age 66.
Verify Your Income Record
Your Social Security payout is based on your highest 35 years of earnings, as recorded by the Social Security Administration. Because any record can have errors or gaps, you should verify your Social Security income record before you file for benefits. If the Social Security Administration is missing one or two of your highest-earning years, for example, your benefit could be permanently reduced by a significant amount.
To verify your Social Security record, create an account. This is where you can see your earnings record and other important information, such as your estimated future retirement, disability and survivors benefits. If you find any mistakes, you can contact the SSA at 1-800-772-1213.
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Your May Have To Pay Taxes On Social Security Benefits
Most people know that you pay tax into the Social Security Trust Fund throughout your career, but some retirees don’t realize that you also have to pay tax on your Social Security benefits once you start taking them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.
It doesn’t take a lot of income for your Social Security benefits to be taxed. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their Social Security benefits. Higher earners may have to pay income tax on up to 85% of their benefits.
You may also have to pay state income taxes on your Social Security benefits. See our list of the 12 States That Tax Social Security Benefits.
Social Security Survivor Benefits
Social Security benefits may be available if you are the survivor–that is, the spouse, child, or parent of a worker who dies. The deceased must have worked long enough under Social Security to qualify for benefits.
Your survivor benefits are based on the earnings of the person who died. The amount you get is based on your age and the type of benefits you are able to receive each month you receive a percentage of the deceaseds basic Social Security benefits. The maximum survivors benefit you can get is limited to what the deceased would have received in life. Click here for additional details and examples.
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Prioritize Your Basic Needs
Next, it’s time to allocate your Social Security benefits. Leonard Hayduchok, CEO and president of Dedicated Financial Services, suggests treating your Social Security check as you would a paycheck. Use the benefits to pay for regularly occurring expenses such as housing costs and groceries. According to the BLS survey, people 65 and older spend an average of the following amounts on food and related housing expenses a year:
You should try to allocate about 60% to 70% of your annual Social Security benefits to pay for these expenses, though that won’t be possible for many retirees. If your annual benefits equal the national average of $1,619.67 a month or $19,436.04 a year, that means 60% of your Social Security check — which comes out to $11,633.83 annually — won’t be enough to cover the expenses above.
Still, it’s a good idea to dedicate as much as you can to food and housing. After all, these are your basic needs — without them, you won’t live well. Just keep in mind that once you’ve used your check to cover these basic expenses, you’ll likely need to dip into your additional income sources to cover other costs.
Retirees whose food and housing costs are greater than their Social Security checks should look for ways to cut back on these expenses. For example, one option might be to move to a city where you can live comfortably off Social Security.
Health Insurance And Drug Cost Help
Pricey health insurance and prescription costs can take a big bite out of retirees’ incomes.
Some may be eligible for assistance with their monthly premiums under the Medicare Savings Program, said Caitlin Donovan, a spokeswoman for the National Patient Advocate Foundation, a nonprofit that helps patients access and pay for health care.
“If you qualify, your premiums, deductibles and copays will be covered, which would be an enormous financial relief for anyone,” Donovan said.
Your Application Might Be Flagged For What You Listed As Your Reason For Job Loss
Applications for UI have never been the easiest to navigate. That goes for both filers and administrators.
Your application might be flagged for further verification if you have a unique reason for losing your job, particularly if it might sound like you quit your position voluntarily. An example of that, Evermore says, could be someone whos recently been injured and had to quit their job operating heavy machinery. While it may appear like youve left voluntarily, theres actually more to the story that requires additional verification.
Any slightly more ambiguous answer to that question puts you in a category that gets extra review, Evermore says. And once the system says we cant automatically approve this because theres a flag, then it has to go to the adjudicator.
How To Check Your Social Security Statement And Why You Should
Modified date: Apr. 19, 2019
If youre investing for your retirement, you shouldnt forget about the income youll earn from Social Security.
Even though it may be decades away, its possible to get an estimate as to what your retirement benefits will be.
All you have to do is get a copy of your Social Security Statement. Its easy to do, and its an absolutely necessary step in planning for your retirement.
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What’s Full Retirement Age
Full retirement age is when you’re eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1955 or later, your full retirement age can be anywhere between age 66 and 2 monthsall the way up to age 67 for those born after 1959. If you were born before 1955, you’ve already reached age 66 and full retirement age.
How To Estimate Your Social Security Income
Two facts are knownSocial Security benefits are not guaranteed, and some changes will be necessary to keep the system solvent in the future as millions of baby boomers retire and begin to receive their Social Security benefits. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere.
A good starting point is to figure out the dollar amount of the retirement benefits to which all of your years of Social Security contributions entitle you under current law. There are four ways to do this:
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