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.
Claiming Social Security Benefits At The Right Time Means More Money In Your Pocket Here’s A Guide To Everything From Knowing Your Full Retirement Age To Taking Social Security Spousal Benefits
For many Americans, Social Security benefits are the bedrock of retirement income. Maximizing that stream of income is critical to funding your retirement dreams.
The rules for claiming Social Security benefits can be complex, but this guide will help you wade through the details. By educating yourself about Social Security, you can ensure that you claim the maximum amount to which you are entitled.
Here are 12 essential details you need to know.
How Social Security Works For Business Owners
Social Security is a government-backed retirement program. Workers across the country pay a Social Security tax each year in exchange for a payment each month in retirement, or if disabled in some cases. This retirement fund isnt quite a guarantee. For the most part, workers from all backgrounds can count on social security. Still, there is a very special way as to how social security works for business owners. This is important to understand in order to get the most from your social security
Social Security is a sometimes controversial program. It seems a decade doesnt go by without a government leader threatening that Social Security may run out of money. Some think the program should be canceled. For now, it is the law of the land. Plus, its something that would be incredibly unpopular to eliminate or reduce. As a business owner, how does Social Security work? Lets dig in and find out.
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Don’t Rely Too Much On Social Security
Regardless of what age you’re able to claim Social Security at, one thing you should know is that your benefits will only replace a modest portion of your pre-retirement earnings, and that you should absolutely plan on having other income to supplement them. So even if you’re confident you’ll be able to claim Social Security at FRA or beyond, it still pays to save on your own.
There’s really no such thing as having too much money for retirement. And so if you push yourself to save under the assumption that you’ll be looking at a reduced benefit only to wind up scoring a boosted one, that’s still not a bad situation to land in.
How Your Primary Insurance Amount Is Calculated
Once you have your AIME, you can calculate your primary insurance amount , the base rate for your Social Security payments. The PIA calculation relies on so-called bend points that determine how much of your income will be replaced by Social Security benefits in retirement.
Think of bend points as similar to tax brackets, in that they determine a percentage of your benefits based on incremental buckets of earnings. There are three bend point buckets: one for 90% of income replacement, one for 32% and one for 15%.
These bend point buckets help give lower lifetime earners a higher percentage of income replacement, and higher lifetime earners a lower rate of income replacement, says Jim Blankenship, certified financial planner and author of A Social Security Owners Manual.
The dollar amounts of bend points are adjusted for inflation each year, but the percentages of each bend point are set by law and remain unchanged. AIME amounts are always rounded down to the nearest $0.10. For 2021, the bend points are:
90% of the first $996 of your AIME, plus
32% of your AIME between $996 and $6,002, plus
15% of your AIME over $6,002
For a worker with an AIME of $6,250, the calculation would look like this:
90% of $966 = $896.40, plus
32% of $5,006 = $1,601.92, rounded down to $1,601.90, plus
15% of $248 = $37.20
This worker would earn a monthly Social Security benefit of $2,535.50 .
How Does Divorce Affect Your Social Security Benefits
Its important to understand your projected social security benefits so you can incorporate that into your divorce financial planning.
You should be sure to obtain a social security benefit statement early on to begin preparing for divorce.
If your marriage lasted at least 10 years, you can collect on your ex-spouses record if you meet the following requirements:
- You are unmarried
- You are age 62 or older
- Your ex-spouse is entitled to Social Security retirement or disability benefits
- The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouses work.
If you meet these requirements, you can first become entitled to receive full or unreduced benefits when you reach full retirement age.
Full retirement age will vary based on what year you were born, but in all cases, you must be at least 62 years old to receive benefits.
At full retirement age, the highest benefit you can receive for an ex-spouses record is 50%.
How To File Social Security Income On Your Federal Taxes
Once you calculate the amount of your taxable Social Security income, you will need to enter that amount on your income tax form. Luckily, this part is easy. First, find the total amount of your benefits. This will be in box 3 of your Form SSA-1099. Then, on Form 1040, you will write the total amount of your Social Security benefits on line 5a and the taxable amount on line 5b.
Note that if you are filing or amending a tax return for the 2017 tax year or earlier, you will need to file with either Form 1040-A or 1040. The 2017 1040-EZ did not allow you to report Social Security income.
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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.
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How Your Social Security Benefits Are Calculated
Your Social Security benefits are based on the 35 calendar years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. You can increase your Social Security benefit at any time by replacing a zero or low-income year with a higher-income year.
There is a maximum Social Security benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2021, the maximum monthly benefit is $3,113. For someone filing at age 70, the maximum monthly amount is $3,895.
You can estimate your own benefit by using Social Security’s online Retirement Estimator.
If You Have Lived In Canada Less Than 40 Years
Not everyone receives the full Old Age Security pension. The amount you receive depends on the number of years you have lived in Canada.
If you lived in Canada for less than 40 years you will receive a partial payment amount. Your payment amount is based on the number of years in Canada divided by 40.
You can delay your first payment up to 5 years to get a higher amount.
If you lived in Canada for 20 years
If you lived in Canada for 20 years after age 18, you would receive a payment equal to 20 divided by 40, or 50%, of the full Old Age Security pension.
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Applying To Delay Your First Payment
If you received a letter from us and want to delay your first payment:
Examples of delaying Old Age Security
Delaying 1 year
Michael turned 65 in July 2019. If he decides to delay receiving the Old Age Security pension for 1 year, his monthly amount will increase by 7.2% to account for the 12-month deferral period from August 2019 to July 2020.
If Michael’s payment amount is $549.89 per month, his increased monthly payment would be $589.48.
Delaying 5 years
Rita will be turning 65 in December 2019. If she decides to delay receiving the Old Age Security pension for the maximum deferral period of 60 months, her monthly amount will increase by 36% at age 70 .
If Rita’s payment amount is $549.89 per month, her increased monthly payment would be $747.85.
Delaying with an earlier start date than the date of application
John could receive his Old Age Security pension in August 2018 and he decided to delay receiving it. In December 2019, John applied for Old Age Security. He writes on his application that he would like his benefit to be effective as of October 2019, 3 months earlier than his application date. His monthly benefit amount will then increase by 8.4% to account for the 14-month period from August 2018 to September 2019. The monthly increase does not apply to the period from October 2019 to December 2019.
If John’s payment amount is $549.89 per month, his increased monthly payment would be $596.08.
More From Life Changes:
The annual adjustments are based on inflation. So bigger monthly checks mean that consumer prices have also gone up. Consequently, the extra cash may not go as far.
The average monthly retirement benefit will go up by $92 to $1,657 in 2022 from $1,565 in 2021.
But the size of the increase will vary by beneficiary.
“Anybody who is currently in receipt of a benefit should take a look at what their benefit is and imagine what a roughly 5.9% increase will do to that benefit level,” Stephen Goss, chief actuary at the Social Administration, said during a recent webinar hosted by the Bipartisan Policy Center.
However, there is one thing that will offset how large those checks will be: Medicare Part B premiums.
Those payments toward Medicare Part B are often deducted directly from beneficiaries’ monthly checks. However, not everyone has Medicare Part B coverage, particularly if they are still covered under an employer health plan or if they have not yet reached Medicare eligibility age, which is 65.
The standard Medicare Part B premium is projected to be $158.50 per month, up from $148.50 this year. However, the rates for next year have not been officially announced.
If you are not covered by Medicare Part B, you can multiply your monthly benefit amount by 1.059 to approximate your payment for next year, said Joe Elsasser, founder and president of Covisum, a Social Security claiming software company.
Watch How Much You Earn In The Years Preceding Full Retirement
The SSA has imposed earning limits for individuals who have entered early and full retirement. Those limits, and the impact on your earnings, depend on how close you are to your full retirement age.
In 2020, an early retiree can make $18,240 in gross wages or net self employment earnings without penalty. Any overage will result in $1 deducted from the Social Security check for every $2 earned above this amount. Once you reach the year of your full retirement age, you can bring in $46,920 prior to the month of your full retirement birthday without penalty. For every $3 earned above this amount, the SSA will deduct $1 from your Social Security payment. These limits also affect the amounts family members can receive from your claim.
Once youve reached full retirement age, earnings do not impact your benefits.
Get The Maximum Benefit From Social Security
You can log into the Social Security Administration website to see your past Social Security earnings and what income you can expect from Social Security in the future based on this income rate. Do everything you can to minimize your taxes and maximize your benefit. Your personal finances are too important to ignore. Social Security is a big part of retirement planning and savings for many Americans. Optimize your Social Security taxes and benefits with a focus on long-term results. The time and money invested are well worth it.
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Theres An Annual Social Security Cost
One of the most attractive features of Social Security benefits is that every year the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The Social Security COLA is quite valuable its the equivalent of buying inflation protection on a private annuity, which can cost a pretty penny.
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 will see a 1.3% COLA in their monthly Social Security benefits.
The Kiplinger Letter forecast in March that the 2022 COLA would be 3%, which would be the largest increase since 2012 when Social Security benefits ticked up 3.6%.
Heres what COLAs have been in other recent years:
- 2009: 5.8%
- 2021: 1.3%
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 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-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’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 take a benefit on the ex’s 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.
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