Know Your Social Security Full Retirement Age
First things first:Determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. If your birthday falls between 1955 and 1959, it gradually climbs to 67. If you are born in 1960 or later, your full retirement age is 67.
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. More on that in a moment.
Beware The Social Security Earnings Test
Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2021 is $18,960. Once you are past full retirement age, the earnings test disappears, and you can make as much money as you want with no impact on benefits.
Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full years worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed and increased as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.
How Does The Social Security Administration Calculate Benefits
Benefits also depend on how much money youâve earned in life. The Social Security Administration takes your highest-earning 35 years of covered wages and averages them, indexing for inflation. They give you a big fat âzeroâ for each year you donât have earnings, so people who worked for fewer than 35 years may see lower benefits.
The Social Security Administration also makes annual Cost of Living Adjustments, even as you collect benefits. That means the retirement income you collect from Social Security has built-in protection against inflation. For many people, Social Security is the only form of retirement income they have that is directly linked to inflation. Itâs a big perk that doesnât get a lot of attention.
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Check The Social Security Administration’s Math
Your statement includes a record of the earnings on which you’ve paid taxes and an estimate of the benefits you will receive at various retirement ages: 62, 67, and 70. It is always wise for you to check the SSA’s numbers. Don’t be surprised if you uncover an error. Some government-watchers estimate that the SSA makes mistakes on at least 3% of the total official earnings records it keeps.
When you check your record, make sure that the Social Security number noted on your earnings statement is your own, and make sure the earned income amounts listed on the agency’s records mesh with your own records of earnings as listed on your income tax forms or pay stubs.
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 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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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.
Basics Of Social Security Withholding
If you work for an employer, your paycheck will likely show an amount withheld for FICA, the Federal Insurance Contributions Act. FICA includes both Social Security and Medicare, the federal health insurance program for Americans 65 and over.
As of 2021, your wages up to $142,800 are taxed at 6.2% for Social Security, and your wages with no limit are taxed at 1.45% for Medicare. Your employer matches those amounts and sends the total to the government.
If you work for yourself, you have to pay both halves because you are, in effect, both employee and employer. This is known as SECA, or the Self Employed Contributions Act, tax.
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How Can You Find Out How Much You Have Paid Into Social Security
To start and see if you can find the information that you wantyou may have to contact your local SSA office. You can also go tothe SSA.gov website and use the search box for Your earningsrecord
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The Social Security Statement is a valuable document thatestimates your future Social Security benefits and tells you how toqualify for those benefits.
This service allows you to transmit your request for a SocialSecurity Statement using an online form. However, we do not sendyour Statement information back on the internet. Instead, you willreceive a response to your request by U.S. mail in 2-4 weeks.
Social Security And The Cost Of Living
Another reason to make sure you have at least one other source of retirement income is to look at what has been happening to the purchasing power of the money that Social Security pays out. Benefits lost 33% of their buying power from 2000 to 2019. The annual cost-of-living adjustment to Social Security retirement benefits has not been enough to keep up with inflation.
Those who receive benefits get the COLA increase in their payments automatically. Social Security benefits increased by 1.3% in 2021 they will increase by 5.9% in 2022. The annual rate of inflation in the U.S. was 5.3% in the 12 months that ended in August 2021.
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What If Social Security Is My Retirement Plan
Do everything possible to keep that from happening. Americans are trying to correct that flawed strategy, though theres plenty of room for improvement.
The countrys retirement score was 83, according to the 2021 Fidelity Investments biennial Retirement Savings Assessment study a three-point improvement over a similar study done three years earlier. That score falls into the good zone. That score means the typical saver was on target to have 83% of the income Fidelity estimated they will need for retirement.
Thats up dramatically from a score of 62 in 2005, but the study also revealed that half of the 3,100 people surveyed probably wont have enough to cover essential retirement expenses.
A 2019 report by The Motley Fool is even grimmer. It found the average retirement savings for American families with some savings was just $65,000.
As insufficient as that number is, there are many other Americans who are headed for disastrous retirements in terms of financial aspects because of their lack of savings. One in four Americans have zero retirement savings, and among the others who are putting money away are likely under-saving. Coupled together, that meant the median for all U.S families was just $5,000 in savings.
Social Security cannot make up for that shortfall. The only strategy is to get your financial house in order and start saving more.
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Which Calculator Should I Use
There are a variety of calculators online for you to choose from. You may discover that you will not automatically get the same results from every calculator. Overall, the calculator found on the official social security website may be the best one. The reason being, it will use your actual earnings as opposed to estimates you use on other sites. However, you will have to input your social security number. Additionally, you are not able to take your mates benefits into account on this calculator. Lastly, you can only use the SS calculator, if you have enough work credits to actually apply.
Fraud In The Acquisition And Use Of Benefits
Given the vast size of the program, fraud sometimes occurs. The Social Security Administration has its own investigatory unit to combat and prevent fraud, the Cooperative Disability Investigations Unit . The Cooperative Disability Investigations Program continues to be one of the most successful initiatives, contributing to the integrity of SSA’s disability programs. In addition when investigating fraud in other SSA programs, the Social Security Administration may request investigatory assistance from other federal law enforcement agencies including the Office of the Inspector General and the FBI.
How Is Social Security Calculated
To determine your monthly benefits, the Social Security Administration uses a series of somewhat complicated calculations. At their heart is an inflation-adjusted average of your monthly income from your highest earning years.
This monthly average is run through an income replacement formula that determines your base monthly Social Security payment rate in retirement. This base rate will then be adjusted upward or downward depending on a few factors, like your age when you start claiming Social Security benefits, your employment status in retirement, your tax bracket and your Medicare premiums.
If that sounds overly complex, dont fret. Heres how each part of the Social Security calculation breaks down.
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The Windfall Elimination Provision
The WEP affects SERS retirees or disability benefit recipients who are, or will be, receiving a Social Security benefit based on their own Social Security employment record.
If you had a private sector job and were contributing to Social Security for that job, the WEP will affect the Social Security benefit you would receive based on the private sector job.
If you have 30 years or more of substantial earnings under Social Security, or you were eligible for either your Social Security or SERS benefit before 1986, the WEP will not affect your Social Security benefit.
The following chart shows what earnings make a qualified year:
What Is A Social Security Card
Your Social Security card is an important piece of identification. You’ll need one to get a job, collect Social Security, or receive other government benefits.
When you apply for a Social Security number , the Social Security Administration will assign you a nine-digit number. This is the same number that is printed on the Social Security card that SSA will issue you. If you change your name, you will need to get a corrected card.
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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 you’ll 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.
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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Undocumented Immigrants Quietly Pay Billions Into Social Security And Receive No Benefits
If all undocumented immigrants were deported today, next years Social Security trust funds would have approximately $13 billion less for benefit payouts. Its a considerable loss of dollars, especially when its projected that the Social Security funds will be depleted by 2034.
According to New American Economy, undocumented immigrants contributed $13 billion into the Social Security funds in 2016 and $3 billion to Medicare. Three years prior, the Chief Actuary of the Social Security Administration, Stephen Goss, wrote a report that estimated undocumented immigrants contributed $12 billion into Social Security.
Approximately 11 million undocumented immigrants live in the U.S. with no legal authorization to work, yet an estimated 8 million do, both on and off the books. Since undocumented immigrants dont have Social Security numbers and are not authorized to work legally in the U.S., they are not eligible for any Social Security benefits, whether theyve paid into the system or not.
How undocumented immigrants pay into Social Security
Undocumented immigrants payments into the Social Security funds become a murkier matter when they are self-employed. By law, anyone earning an income while in the United States is required to pay taxes, even if they are breaking other laws in doing so.
Population Growth and Social Security
The future of Social Security
No one benefits from having people in the shadows, Kolken said.
Theres An Annual Social Security Cost
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is quite valuable its the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. In 2021, Social Security beneficiaries saw a 1.3% COLA in their monthly Social Security benefits.
The Kiplinger Letter predicted in September that the COLA for 2022 could be 6%, which would be the largest adjustment since 1982. The final COLA for 2022 will be announced on Oct. 13.
Heres what COLAs have been in other recent years:
- 2009: 5.8%
- 2021: 1.3%
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If You Work More Than One Job
Keep the wage base in mind if you work for more than one employer. If you’ve earned $69,000 from one job and $69,000 from the other, you’ve crossed over the wage base threshold. Neither employer should withhold any further Social Security tax from your payor pay half the 12.4% on your behalfuntil year’s end.
It doesn’t matter that individually, neither job has reached the wage base threshold. The wage base threshold applies to all your earned income. But separate employers might not be aware you’ve collectively reached this limit, so you’ll have to notify both employers they should stop withholding for the time being. However, you can always receive reimbursement of any overpayment when you file your taxes.
These are annual figures, so the Social Security tax starts right back up again on Jan. 1 until you hit the next year’s Social Security wage base.