A Couple With Shorter Life Expectancies May Want To Claim Earlier
How it works: Benefits are available at age 62, and full retirement age is based on your birth year.
Who it may benefit: Couples planning on a shorter retirement period may want to consider claiming earlier. Generally, one member of a couple would need to live into their late 80s for the increased benefits from deferral to offset the benefits sacrificed from age 62 to 70. While a couple at age 65 can expect one spouse to live to be 85, on average, couples who cannot afford to wait or who have reasons to plan for a shorter retirement, may want to claim early.
Example: Carter is age 61 and expects to live to 77. He earns $70,000 per year. Caroline is 59 and expects to live until age 76. She earns $80,000 a year.
What If I Take Benefits Early
If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.
If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.
For example, lets assume that you stop working at age 62. If your full retirement age is 66 and you elect to start benefits at age 62, the reduced benefit calculation is based on 48 months. This means that the reduction for the first 36 months is 20% and 5% for the remaining 12 months. Overall, your benefits would be permanently reduced by 25%.
Is Social Security Taxable
Your income from Social Security can be partially taxable if your combined income exceeds a certain amount. Combined income is defined as your gross income plus any nontaxable interest that you earned during the year, plus half of your Social Security benefits. For example, if youre married, file a joint tax return with your spouse, and your combined income ranges from $32,000 to $44,000, then you may have to pay tax on up to 50% of your Social Security benefits. If your combined income is greater than $44,000, then up to 85% of your benefits may be taxable. For single filers, those income numbers are $25,000 to $34,000 and greater than $34,000.
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Minimize Your Social Security Taxes
If you thought your days of paying taxes stop with Social Security, guess again. Your Social Security benefits are taxable when your adjusted gross income, plus your nontaxable interest, plus your Social Security benefits exceed $25,000 as an individual or $32,000 as a married couple. When this happens, youll owe income tax on half of your Social Security income . However, youll never be required to pay tax on more than 85% of your SSI, no matter how much you earn. For high-income earners, this is one incentive to take SSI benefits as early as possible, because the lower SSI payment means less tax.
Social Security Survivor Benefits
In addition to claiming your own record or your spouses record while living, a widow can also claim the deceased spouses record. A survivors benefit can be claimed by the widow or widower as early as age 60 but on a reduced basis. Much like a spousal benefit, the survivor benefit can be reduced if claimed early but cannot be increased by the survivor deferring past their full retirement age or FRA.
Example: Lets assume that your FRA is age 66. The survivor benefit available to you at your FRA would be 100% of what your deceased spouse received if they claimed their benefit. In other words, when one spouse delays claiming their benefit until after their FRA, they not only receive a higher benefit for themselves but that higher benefit will be available to their surviving spouse if its higher than what the surviving spouse is then receiving.
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Use An Online Calculator
Consider using any number of software programs and online calculators to model how best to maximize your Social Security benefit.
There are so many moving parts in the Social Security filing process that it can be very confusing, David Freitag, a financial planning consultant and Social Security expert with MassMutual.
For example, a married couple both turning 62, has 81 different age combinations to consider. Software can show which key variables drive the payout numbers.
For his part, Joe Elsasser, president of Covisum, which developed a software program called Social Security Timing, recommends making your decision when to claim based on the lifetime value of Social Security benefits, not just the monthly benefit amount.
According to Elsasser, the lifetime benefit considers how much you will receive from Social Security based on when you elect, coupled with how long you will receive benefits based on a reasonable estimate of your longevity, paired with the longevity of other members of the household.
Social Security offers a number of calculators on its website , some of which can help you estimate your lifetime benefits.
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Filing Taxes As An Individual
- If you are filing your taxes as an individual and your combined income is less than $25,000, you will not have to pay taxes on any of your social security benefits.
- If you are filing your taxes as an individual and your combined income is in-between $25,000 and 34,000, you will have to pay taxes on 50% of your benefits.
- If you are filing your taxes as an individual and your combined income is more than $34,000, 85% of your benefits will be subject to tax.
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Social Security Funds Are Separate
Even if the debt ceiling does not get raised, funds from payroll taxes would still continue to come into the government, Altman said.
Those contributions go toward the program’s trust funds and are used to pay benefits.
Social Security’s combined trust funds for retirement and disability can continue to pay full benefits until 2034, according to the recently released Social Security trustees report for 2021. At that point, 78% of promised benefits will be payable.
“If the debt ceiling doesn’t get raised for a decade, which nobody thinks is going to happen, then there’s not going to be a problem,” Altman said.
Use These Tips To Help You Boost Your Monthly Payment
Maximizing your Social Security benefits isn’t easy, especially since there are hundreds of rules governing payments alone. But since most retired Americans depend primarily on Social Security, it’s important to get everything you’re entitled to.
“Claiming benefits early frequently costs people hundreds of thousands of dollars in reduced benefits over their lifetime,” says Philip Moeller, co-author of “Get What’s Yours: The Secrets to Maxing Out Your Social Security” . “Failure to claim benefits at all is also a big problem.”While the rules are complex, there are some simple guidelines that you can follow to maximize the amount of money youll receive.
Planning Tip: Create a free, mySocialSecurity account for access to your personalized Social Security statement, which includes estimates of your future benefits. You also can use it to verify earnings history, on which Social Security benefits calculation are based.
Don’t Claim Social Security Benefits Early If Youre Still WorkingUnless you need Social Security benefits to cover your expenses while you are still working, it’s better not to claim early. If you do, you won’t be entitled to as much as you would have received had you waited to claim at full retirement age. Also, a portion of your monthly benefit will be withheld on earnings over $15,720. Once you reach full retirement age , your monthly benefits are adjusted upward to account for the money that was withheld while you were working.
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How Your Social Security Benefits Are Earned
To be eligible for Social Security benefits in retirement, you must earn at least 40 “credits” throughout your career. You can earn as many as four credits a year, so it takes 10 years of work to qualify for Social Security.
In 2021, you must earn $1,470 to get one Social Security work credit and $5,880 to get the maximum four credits for the year.
It Pays To Boost Your Benefits
Social Security is designed to replace about 40% of your pre-retirement income, assuming you were an average earner. Most seniors, however, are advised to aim for 70% to 80% or more of their former income, depending on their desired retirement lifestyle and goals. This means you’ll need an additional source of income outside of those benefits to live comfortably. That additional income source could be savings in an IRA or 401. Or, it could be earnings from a part-time job or small business.
That said, if you’re approaching retirement with little in the way of personal savings, or you have health issues that you know will prevent you from earning money as a senior, then it pays to boost your Social Security income as much as you can. In fact, among those collecting retirement benefits at present, an estimated 21% of married couples and 45% of unmarried recipients depend on Social Security for 90% or more of their income. If that’s the boat you expect to be in once retirement rolls around, then be sure to do everything within your power to get as much money from Social Security as possible.
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Delay Your Benefit Claim
Another easy way to boost Social Security benefits is to simply be patient. Although eligible seniors can choose to take their retirement benefit as early as age 62, Social Security incents patience by increasing the payouts of those who wait , through age 69. All factors being equal, such as work history, earnings history, and birth year, a retired worker claiming benefits at age 70 can receive up to 76% more each month than an individual claiming at age 62.
What you might not realize is that waiting is a statistically smarter move, too. A 2019 study released by United Income compared the actual claiming decisions of 2,000 senior households with their optimal claiming decisions. By optimal, I’m referring to the claiming age that would have maximized lifetime benefits. United Income found that 57% of all seniors in the study would have made an optimal claiming decision at age 70. By comparison, only 6.5% made the best claiming choice by taking their payout prior to reaching age 64.
Dont Earn Too Much If Your Retire Early
If youre thinking of taking your Social Security benefits at age 62, and continue working, you need to be aware that the SSA will penalize you for earning too much. The most you can earn before you reach your FRA, without a penalty, is $17,640 in 2019. This amount adjusts each year.
If you earn more than this amount, and youre taking your Social Security benefits early, your Social Security benefit will be reduced. There are two earnings limit rules that may apply. The rule that applies to you depends on whether you earn the income before or during the year you reach full retirement age . Before the year you reach your FRA Social Security will take back $1 of Social Security for every $2 youre over the limit. During the year you reach FRA Social Security will deduct $1 for every $3 you earn that is over the annual earnings limit.
As you can see, there are some serious ramifications for taking Social Security early if youre planning to continue working. If you dont plan to continue working past age 62, and youve been a high-income earner for 35 years and a good saver, theres no reason not to take your Social Security early. You can use it to reduce the amount you take from retirement savings, which is taxable. If you have not been a high-income earner, or you dont have enough money saved to retire, the better strategy is to work longer at the highest paying job you can find.
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What Is The Cola Allowance
A COLA is a boost in income that keeps pace with the cost of living.
It is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers , which measures changes in the cost of popular goods and services.
The COLA rises when inflation and CPI-W increase.
While this means additional social security benefits, you might have to spend more to cover living costs.
According to the Labor department, the consumer price index spiked by 5.4% in July compared with the same month last year.
However, when the CPI-W falls, then social security recipients are typically denied a COLA.
Simple Strategies To Maximize Your Benefits
Richard has more than 30 years of experience in the financial services industry as an advisor, a managing director, directors of training and marketing, and currently as a consultant to the industry. Richard has written extensively on a broad range of wealth management, investment, and personal finance topics that have appeared on sites such as Kiplinger, Best Company, Newsmax, and Yahoo Finance. He is an expert on Finra Exams and Retirement Planning.
When Social Security was introduced in 1935, it was never intended to be a primary income source that could support people in retirement. Rather, its sole purpose was to provide a safety net for people who were unable to accumulate sufficient retirement savings. For the next several decades, the majority of Americans never gave much thought to their Social Security because of shorter lifespans and a reliance on guaranteed pensions.
Things are very different today.Social Security planning is now a vital element in securing income sufficiency in retirement and there are strategies to maximize your benefits.
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Tips For Retirement Planning
- Even after you max out your benefits, chances are Social Security wont pay as much as what you earned. To make up the difference, youll need to draw on your nest egg. To find out how large a nest egg youll need, use our award-winning retirement calculator.
- As you approach retirement, you may be uncomfortable keeping your savings in the stock market. In that case, you may want to buy an annuity. A financial advisor can help you determine what makes the most sense. And SmartAsset can help you find a financial advisor. Just use our matching tool. Itll recommend three advisors based on your preferences and goals.
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Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our reporters and editors focus on the points consumers care about most how to save for retirement, understanding the types of accounts, how to choose investments and more so you can feel confident when planning for your future.
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Ways To Get More From Medicare
Medicare can be a very unforgiving program. There are a number of pitfalls that can hurt you if youre not careful. In many ways, not getting your Medicare right is far worse than not getting your Social Security right. With that in mind, there are 7 easy ways to get the most out of your Medicare benefits, including:
What Income Reduces Social Security Benefits
If you plan to work in retirement and also collect Social Security benefits, then some of your benefits may be temporarily withheld based on your income. Until you reach your FRA, your benefits will be reduced by $1 for every $2 you earn in excess of $18,960 for 2021. In the year you reach your FRA, your benefits will be reduced by $1 for every $3 that you earn above $50,520 for 2021.
Starting with the month when you attain FRA, your benefits will no longer be reduced. Note that these dollars are not lost forever instead, your Social Security benefit will be increased to account for them after you reach your FRA.
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Know The Best Time To Claim Your Social Security Benefits
Knowing the best time to start claiming Social Security will have a huge impact on your benefits for the remainder of your life. Most of us have heard that the longer we wait to claim Social Security, the more we will get. This is not true in all cases. It really depends on your situation.
For worker retirement benefits, delaying retirement until after your full retirement age will increase the amount of your monthly Social Security check. This brings many people to the conclusion that, if they can afford it, they shouldnt take their Social Security benefits until age 70. This may be true for the worker, but it might not be true for a spouse.