Sunday, August 14, 2022

How Far In Advance Should You Apply For Social Security

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If Health Problems Force You To Retire Early

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Sometimes health problems force people to retire early. If you cannot work because of health problems, you should consider applying for Social Security disability benefits. The amount of the disability benefit is the same as a full, unreduced retirement benefit. If you are receiving Social Security disability benefits when you reach full retirement age, those benefits will be converted to retirement benefits.

Documents You Will Need

Whether you apply online or in person, you will need the following information when you apply for your Social Security benefits:

  • Your Social Security number
  • Your W-2 forms or self-employment tax return for the last year you worked
  • Your military discharge papers if you served in any branch of the military

If you choose to have your benefits paid through direct deposit, you will also need your bank’s name, your account number and your bank’s routing number as shown on the bottom of your checks.

An Example Of Taxed Benefits

Lets say you receive the maximum Social Security benefit for a worker retiring at FRA in 2021: $3,148 per month. Your spouse receives half as much, or $1,574 a month. Together, you receive $4,722 a month, or $56,664 per year. Half of that, or $28,332, counts toward your combined income for determining whether you have to pay tax on part of your Social Security benefits. Lets further assume that you dont have any nontaxable interest, wages, or other income except for your traditional individual retirement accounts required minimum distribution of $10,000 for the year.

Your combined income would be $38,332half of your Social Security income, plus your IRA distributionwhich would make up to 50% of your Social Security benefits taxable because youve exceeded the $32,000 threshold. Now, you may be thinking, 50% of $56,664 is $28,332, and Im in the 12% tax bracket, so the tax on my Social Security benefits will be $3,399.84.

Fortunately, the calculation takes other factors into account, and your tax would be a mere $225. You can read all about the taxation of Social Security benefits in the Internal Revenue Service Publication 915.

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You Can Claim Social Security Benefits Earned By Your Ex

Just because you’re divorced doesn’t mean you’ve lost the ability to get a Social Security benefit based on your former spouse’s earnings. 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 you are single.

Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s 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 ex-spouse’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still start collecting Social Security based on the ex’s record, though you must have been divorced for at least two years.

Note: Ex-spouses can also take a survivor benefit if their ex 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.

When Should You Start Collecting Social Security Benefits

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To determine when you should start taking your benefits, its important to understand how much your check is affected by when you claim your benefit. As mentioned before, you can claim your benefit as early as age 62, but reaching full retirement age can secure your full benefit.

So when exactly is full retirement age? That depends on when you were born.

Year of birth
65 + 2 months for each year past 1937
1943-1954
66 + 2 months for each year past 1954
1960 and later67

While the full retirement age used to be 65, changes to the program have increased that age. For example, those born in 1955 now have to wait an extra two months beyond age 66 to claim their full benefit. Someone born in 1959, for example, would have to wait until age 66 and 10 months to get the full benefit. Anyone born in 1960 or later, receives their full benefit at 67.

But some retirees choose to wait even longer. You may wait until as late as age 70 to claim your benefit, but then you must take it. Youll receive a bigger check for doing so.

So what is the upside to delaying your Social Security benefit after age 62? Your check wont get hit by a serious benefit reduction. Heres how much a $1,000 monthly check will become if you claim your benefit as soon as youre eligible at age 62.

Year of birthIf you file at 62, benefit reduced by:A $1,000 check becomes
$700

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Early Benefits Can Still Pay Off

However, taking early benefits can still pay off despite the reduced monthly check. But youll want to be sure you budget for a reduced benefit.

No one can predict how long youll live, but if youre facing a potentially significant reduction in life expectancy and are short of income, taking Social Security early may be appropriate, Neiser says.

Married women are also good candidates for claiming early benefits because they are likely to outlive their husbands. Those widows then become eligible to receive the greater of either their benefit or their late husbands benefit.

However, this scenario works only if the husband does not claim his benefits early. By not claiming early benefits, the husband effectively increases the monthly benefit his wife eventually receives. So youll want to calculate how filing early will affect your spousal benefit here.

How Do Benefits Work And How Can I Qualify

While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:

  • Those who are currently retired

  • To people with disabilities

  • To the surviving spouses and children of workers who have died

Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.

There are four main types of benefits that the SSA offers:

  • Learn about earning limits if you plan to work while receiving Social Security benefits

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If You Work While Getting Social Security

Yes, you can work full or part-time while also getting Social Security retirement benefits. However, if you have not yet reached your full retirement age, and if your net income from working is higher than the annual earnings limit, your annual benefits will be reduced. Beginning in the month you reach full retirement age, Social Security will stop reducing your benefits no matter how much you earn.

During any full calendar year in which you are under full retirement age, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual net income limit. The income limit changes every year. In 2017, the income limit was $16,920.

What’s Full Retirement Age

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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.

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Financial Benefits Of Working Longer

Many people want to retire as soon as it is financially feasible to do so, but it’s crucial to consider the earning and investing power you may give up if you stop working full-time and take Social Security at 62. If you leave a job with good pay and benefits, it may be difficult ever to regain that level of compensation if you need or want to return to work later. Of course, not everyone can keep working, but it is something to consider if you are healthy and have the opportunity to stay in the workforce, in either a full-time or part-time capacity.

The compensation benefits of your job could also affect your Social Security. Some companies allow stock awards to continue to vest after retirement date, and even into years to follow. These payouts are considered income, and could cause your Social Security payment to be taxed, or taxed at a higher level than in years after the awards have fully distributed. Delaying Social Security payments until those other income sources have been reported for tax purposes is worth consideration.

But there’s even more to the story. As you approach retirement, you’re often at the upper end of your lifetime earnings trajectoryand of your ability to save more for retirement. In addition, if you can keep working, you can make “catch-up” contributions to a tax-deferred workplace savings plan like a 401 or 403 or a traditional or Roth IRA. Catch-up contributions allow you to set aside larger amounts of money for retirement.

When Should You Retire

To draw full retirement benefits, the following Social Security Administration age rules apply:

Born in 1937 or earlier – Full retirement can be drawn at age 65Born in 1938 – Full retirement can be drawn at age 65 years and 2 monthsBorn in 1939 — Full retirement can be drawn at age 65 years and 4 monthsBorn in 1940 — Full retirement can be drawn at age 65 years and 6 monthsBorn in 1941 — Full retirement can be drawn at age 65 years and 8 monthsBorn in 1942 — Full retirement can be drawn at age 65 years and 10 monthsBorn in 1943-1954 — Full retirement can be drawn at age 66Born in 1955 – Full retirement can be drawn at age 66 and 2 monthsBorn in 1956 — Full retirement can be drawn at age 66 and 4 monthsBorn in 1957 — Full retirement can be drawn at age 66 and 6 monthsBorn in 1958 — Full retirement can be drawn at age 66 and 8 monthsBorn in 1959 — Full retirement can be drawn at age 66 and 10 monthsBorn in 1960 or later — Full retirement can be drawn at age 67

Remember that while you can begin drawing Social Security retirement benefits at age 62, your benefits will be 25 percent less than what they will be if you wait until your full retirement age as shown above. Also keep in mind that no matter when you start drawing Social Security benefits, you must be 65 to be eligible for Medicare.

For example, people who waited until age 70 to retire in 2017 could get a maximum benefit of $3,538.

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Taking Social Security: How To Benefit By Waiting

For those who are able to do so, it may make sense to wait even longer, because youll receive a larger monthly benefit even more than your full benefit. Every month past your full retirement that you delay, Social Security will increase your check by about 0.7 percent per month.

If your full retirement age is 66, then heres how much your check would increase:

Retirement ageNew benefit A $1,000 check becomes
$1,320

So if your full retirement age is 66, then if you can wait two more years and claim benefits at age 68, youll increase your monthly check by 16 percent. In this case, if your full benefit were $1,000 a month, your new benefit would become $1,160 per month. And youll still receive cost of living adjustments on top of this amount, typically raising your payout a little each year.

Workers have other ways to grow their Social Security benefits, too, but its important to start early.

Can You Still Work While Receiving Social Security

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You can continue to work while you receive Social Security benefits. But there is a limit to how much you can earn and still receive full benefits. The earning limit may be adjusted each year.

If you earn above the limit, Social Security will deduct a certain amount of your benefits each year.

Social Security Benefits, Earning Limits and Penalties

RETIREMENT AGE
SSA deducts $1 from your benefits for every $3 you earn above the limit

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How Soon Should I Apply

When it comes to timing, you should submit your application for disability benefits as soon as possible. It can take up to a year for your application to be processed, so it is important to apply as soon as you receive your diagnosis.

There is a mandatory waiting period of five months between the onset of your condition and when you can receive disability benefits. You can apply at any point after being diagnosed, but your payments wont arrive until after that five month period has lapsed.

In many cases, the Social Security Administration can process your claim in about three months, but it will take up to two months to receive your first check after being approved, and even longer if youre eligible for back pay. Rather than wait until five months have passed, it is better to apply right away so that you can get the process started.

If you’re hoping to apply for a disability soon but can’t do so right away, you may want to get what’s considered a “protective filing date.” Basically, you let Social Security know when you’ll be filing a disability claim in the next couple weeks or months.

When you apply, the date on which you notified Social Security that you plan to file essentially becomes the date of your application for a variety of purposes.

When Can You File For Social Security

The earliest when you can apply for Social Security benefits is at age 61 and nine months, and you can expect to receive your first payment four months laterthe month after your birthday. Typically, Social Security benefits are paid the month after they are due or must be specified. For example, the Social Security website states that an individual who wants their benefits to start in May will receive their first benefit check in June.

For example, if you turn 62 on Dec. 15, then your first full month of eligibility is January, and your payment for that month will arrive in February. If you have already reached age 62 and met all other eligibility criteria, then you may begin collecting benefits in the same month when you apply if you specify, although your first payment still would not arrive until the following month.

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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.

How Your Social Security Benefits Are Earned

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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 each 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.

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How Many Months In Advance Should You Apply For Social Security

Once you determine when you plan to file for SocialSecurity, you can then decide when to actually complete the application. If youare turning 62, the earliest you can apply will be 3 months prior to yourbirthday month. If you are older than 62, you should apply four months beforeyou expect to get your first benefits.

Review Your Application Status

To view your application status, you can:

  • your social insurance number or client identification number
  • a detailed explanation of why you do not agree with the decision
  • any new information that could affect the decision
  • your signature and the date
  • If you complete your request on paper

    Sign and date your written request and submit it:

  • in person at a Service Canada office
  • Reconsiderations can take several months to complete, depending on the case. Service Canada will review your application and any new information you submit in support of your request and send you a decision by mail.

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