Think About Your Tax Situation
What Uncle Sam gives, he also takes away in the form of taxes. Regardless of when you retire, up to 5085 percent of your Social Security income may be taxable if your modified adjusted gross income reaches certain levels. There is nothing to be done about this simply be aware that your Social Security benefit may bump you up to a higher income tax bracket. See Question 25 for more about taxes in retirement.
Bottom line? The most common error people make when it comes to Social Security is starting to collect their benefit too early. Yes, its tempting to take the money and run. But before you do, carefully weigh your options. On further scrutiny, you are likely to find that you will get the best return on your money by postponing and allowing your monthly draw to increase.
|Consider taking benefits early if:||Consider taking benefits later if:|
|Youre not working and cant make ends meet.||Youre still working and make enough to impact the taxability of your benefits.|
|You are in poor health.||You are in good health and longevity runs in your family.|
|You are the lower-earning spouse and your spouse can wait to file for a higher benefit.||You are the higher-earning spouse and want to be sure that your surviving spouse receives the highest possible benefit.|
Part IV: Maximizing Social Security and Medicare, Question 30
How To Determine If Social Security Benefits Are Taxable
Seniors whose only source of income is Social Security do not have to pay federal income taxes on their benefits. If they receive other sources of income, including tax-exempt interest income, they must add one-half of their annual Social Security benefits to their other income and then compare the result to a threshold set by the IRS. If the total is more than the IRS threshold, some of their Social Security benefits are taxable.
For 2020, the threshold amount is $25,000 for singles and $32,000 for married couples filing jointly. Married couples who live together but file separately have a threshold of $0 and must pay taxes on Social Security benefits regardless of other income earned.
The formula for calculating your combined income includes adding your adjusted gross income plus nontaxable interest plus half of your Social Security benefits. Your other income, which is included in adjusted gross income, can come from a part-time job or 401 withdrawals.
More specifically, Social Security benefits are taxed as follows:
- Up to 50% of Social Security benefits are taxed on income from $25,000 to $34,000 for individuals or $32,000 to $44,000 for married couples filing jointly.
- Up to 85% of benefits are taxable if the income level is over $34,000 for individuals or $44,000 for couples.
What If I Continue Working In My 60s
Many people whose health allows them to continue working in their 60s and beyond find that staying in the workforce keeps them young and gives them a sense of purpose. If this sounds like something youâd like to do, know that working after claiming early benefits may affect the amount you receive from Social Security. Why? Because the Social Security Administration wants to spread out your earnings so you donât outlive them. If you claim Social Security benefits early and then continue working, youâll be subject to whatâs called the Retirement Earnings Test.
If youâre between age 62 and your full retirement age, and youâre claiming benefits, you need to know about the Earnings Test Exempt Amount, a threshold that changes yearly. For 2021, the Retirement Earnings Test Exempt Amount is $18,960/year . If youâre in this age group and claiming benefits, then every $2 you make above the Exempt Amount will reduce by $1 the Social Security benefits youll receive.
Contrary to popular belief, this money doesnât disappear. It gets credited back to you with interest in the form of higher future benefits. You may hear people grumbling about the Social Security âEarnings Taxâ, but itâs not really a tax. Itâs a deferment of your benefits designed to keep you from spending too much too soon. And after you hit your full retirement age, you can work to your heartâs content without any reduction in your benefits.
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You Can Claim Social Security Benefits Earned By Your Ex
Just because youre divorced doesnt mean youve lost the ability to get a Social Security benefit based on your former spouses earnings record. You can receive a benefit based on his or her record instead of a benefit based on your own work record if you were married at least 10 years, you are 62 or older, and single.
Like a regular spousal benefit, you can get up to 50% of an ex-spouses benefit less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your exs record has no effect on his or her benefit or the benefit of your exs new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still take a benefit on the exs record if you have been divorced for at least two years.
Note: Ex-spouses can also take a survivor benefit if their ex has died after the divorce, and, like any survivor benefit, it will be worth up to 100% of what the ex-spouse received. If you remarry after age 60, you are still eligible for the survivor benefit.
A claiming strategy if youre divorced: Exes at full retirement age who were born on January 1, 1954, or earlier can apply to restrict their application to a spousal benefit while letting their own benefit grow.
Who Is Eligible For Spousal Benefits From Social Security
We are often asked How do you qualify for spousal benefits from Social Security? Indeed, to claim Social Security spousal benefits, youll need to meet certain criteria. Your spouse or ex-spouse also must be living .
The criteria for spousal benefits varies depending on whether youre married or divorced:
If youre married, to qualify for spousal benefits you must:
- Be married for at least one year
- Have a spouse that is already collecting their Social Security benefits
- Have an earned benefit that is lower than your potential spousal benefit
- Be age 62 or taking care of a child who is age 16 or younger or disabled, who is the child of your spouse and who is also receiving Social Security benefits based on the spouses work record
If youre divorced, your benefits arent connected in the same way, so you can claim spousal benefits even if your ex isnt collecting Social Security yet. Note that you do not need the consent of your ex-spouse. Both of you, however, must be at least age 62. If youve been divorced more than once, your benefit can be based on your highest-earning spouse if that marriage meets the qualifications. If youre divorced, to qualify for spousal benefits you must:
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How To Understand Social Security Retirement Benefits
Social Security, managed by the U.S. federal government, pays benefits to retirees. Social Security benefits are one part of a broader retirement plan. These benefits can supplement other sources of retirement income, such as 401s, individual retirement accounts or other retirement savings plans.
How Much Will My Spouse Receive
If your spouse qualifies for benefits on their own record, we will pay that amount first. If the benefit on your record is higher, they will get an additional amount on your record so that the combination of benefits equals that higher amount.
If they begin receiving benefits:
If your spouse will receive a pension for work not covered by Social Security such as government employment, the amount of their Social Security benefits on your record may be reduced.
at any age
Benefits paid to your spouse will not decrease your retirement benefit. In fact, the value of the benefits they may receive, added to your own, may help you decide if taking your benefits sooner may be more advantageous.
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Focus On Raising Your Income
The standard benefit retirees get at FRA is calculated using a formula that takes into account the average wage you earned in your 35 highest-earning years. If you can find ways to increase the amount of income you have during as many years of your career as possible, the wage your benefit is based on should be higher.
The more years you earn more than the typical American does, the better your chances of substantially beating the $1,657 average benefit. On the other hand, if you have many years when you donât earn much, chances are good that your Social Security income will be below what your peers receive.
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Know How Qualification Works
In order to receive Social Security retirement benefits, a worker born in 1929 or later needs 40 credits.The most a worker can earn in a calendar year is four credits.Benefits are based on a workers highest 35 years of earnings indexed for inflation. Years with no earnings count as zero, thus lowering the average career earnings and the monthly retirement benefit.
Can You Collect Social Security If You Never Worked
It may seem logical that if you never worked and therefore never paid into Social Security that you would not be eligible to receive Social Security benefits. Well, thats not the case. In fact, there are several different scenarios in which a person can receive Social Security benefits without ever having paid into the system, or even worked, for that matter.
Among the people eligible for Social Security without having worked are spouses and former spouses of people who are eligible for benefits, and survivors of beneficiaries along with their qualified children.
What Happens If One Spouse Dies
If your spouse passes away, you can collect a survivors benefit as early as age 60. You will be able to get the maximum benefit, or the full amount of your spouse’s monthly Social Security payment, if youve reached FRA.
Before that, its reduced by 71.5%-99%. The amount it’s reduced by depends on how many years over 60 you are.
If you are the surviving spouse, you can restrict your application to file for either their own benefit or the survivor benefit. Later, you can switch to the other amount.
You might do this if your own monthly payment at age 70 would be larger than your spouse’s payment. You could claim the spousal benefit for several years, and then at age 70 switch to your own benefit.
If you are divorced and your ex-spouse dies, you might be able to get the same benefits as any current spouse. This is true if your marriage lasted at least 10 years or you are caring for a qualifying child.
Once you and your spouse have started getting Social Security benefits, the surviving spouse will have to choose one benefit. You can take either your spouse’s monthly payment or your own. You cannot get both.
If you live in the same household when your spouse passes away, you will also be able to get a one-time lump-sum payment of $255.
Can I Receive Social Security Benefits From My Ex
Because the spousal benefit is intended to compensate spouses who perform the critical tasks of raising the family and maintaining the family home, spouses who undertook this work during their marriage may wonder whether they can receive Social Security spousal benefits from a former spouse following their divorce. In short, a person can receive Social Security spousal benefits from an ex-spouse, including if your ex-spouse has died.
Taking Social Security In The Pandemic: What To Know
Suddenly unemployed older workers who had hoped to delay filing have options that can boost their lifetime benefits.
The trend has been moving in a positive direction: Over the past decade, far more workers who are eligible for Social Security have been waiting to file, often substantially increasing their lifetime annual benefits.
But the stunning job losses in the pandemic-induced economic crisis could bring this trend to a crashing halt, as suddenly unemployed older workers without substantial savings scramble to meet living expenses.
At a time when fewer retired households can rely on traditional pensions and only about half own retirement accounts, Social Security is the most important benefit for most Americans. Even in good times, there is no simple, one-size-fits-all answer when it comes to timing a claim your longevity, savings and any other pension income are important factors.
Now the decision is complicated by the highly uncertain outlook for the economy, jobs and financial markets. But even if you need Social Security income immediately, you may have options worth considering that can boost lifetime benefits.
Lets review the pros and cons of different strategies for claiming benefits during the coronavirus pandemic.
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How Does Social Security Work For Married Couples
When most people reach their 60s, they start thinking about their retirement benefits from Social Security. For married couples, there are advantages to making decisions about retirement as a couple, rather than as individuals. Taking into consideration joint life expectancy, future plans, and your household budget, you can make some decisions about retirement together.
Are you eligible to receive benefits as a spouse?It is likely that both you and your spouse have earned enough Social Security credits to be eligible for your own benefits after retirement. Anyone who is married can apply for Social Security benefits on their own, or they can take the option to get up to 50 percent of their spouses benefit amount at full retirement age.
If you decide to opt for the spousal benefit but have not yet reached full retirement age yourself, that benefit will be less than 50 percent. This may still be a good option if you have not been working much through the years. You should look into how much your estimated benefits would be at full retirement age so you can make a comparison.
Do you qualify for your own Social Security benefits as well as spousal benefits?
Social Security pays your benefits first, but if the benefits you would receive through your spouse are higher than yours, you can receive a combination of these benefits to reach the amount you would receive as a spouse.
How Much Do You Get
There are different types of Social Security benefits that you can claim. You can take Social Security income based on your own work history and earnings. Or, you can collect a spousal benefit instead.
If you take the benefits based on your spouse’s work history and earnings, you will get 50% of the amount of your spouses Social Security benefit.
This amount is calculated their full retirement age, or FRA. FRA depends on when you were born. You can check the Social Security website to find out how old you or your spouse need to be to reach FRA.
Social Security calculates and pays the higher amount.
If you were born on or before Jan. 1, 1954, once you reach your FRA, you can choose to receive only the spousal benefit. You can apply for this by filing what is known as a restrictedapplication.
This lets you put off getting your own retirement benefit. Your benefit will keep growing until you file at a later age. If you were born any later than Jan. 1, 1954, you no longer have this option.
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Challenges With Certain Spousal Benefits
Lets take a look at an example. Jessica and Patrick are married. Jessica is 60 years old and Patrick is 70. Jessica has always worked outside the home and paid into Social Security. Her workers benefit would be around $2,000 a month at age 67, her full retirement age.
However, Patrick never paid into Social Security and wants to collect spousal benefits. Even though hes 70, he cant collect spousal benefits because Jessica hasnt collected her Social Security. And unfortunately, spousal benefits dont increase for deferring past full retirement age.
One option to maximize benefits is for Jessica to collect Social Security early. This would cause a significant reduction in her benefits but would allow Patrick to claim half of her $2,000 benefit because he has already reached full retirement age himself. If Jessica waits until age 70 to collect her benefit, Patrick would be 80. This scenario where the spouse hoping to collect spousal benefits is significantly older than the working spouse is perhaps the most challenging Social Security claiming situation. But with a ten-year age gap, it is possible that the best strategy is for Jessica to collect benefits at full retirement age, which will also trigger spousal benefits earlier than waiting to age 70.
Know How Social Security Pays
Most of Social Security payouts comprise of retirement and survivor benefits which possess unique characteristics:
- You cant outlive them
- You can receive automatic cost of living adjustments
- You need not be an investment expert
For a program so important, it pays to know how it works and consider how you can maximize it.
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How Do You Apply For Survivor Benefits
Because individual circumstances can vary widely, it is not possible to apply for survivor benefits online. However, you can apply over the phone or by appointment at your local Social Security office. Current requirements and contact information are always available on the Social Security Administration website.
Applying for survivor benefits may require you to submit specific documents, such as a death certificate, marriage certificate, proof of citizenship, or a divorce decree, so rounding them up beforehand will help expedite the process.