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.
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.
If You Are Still Working And Receiving Old Age Security Payments
If you are still working and your income is higher than $79,054 , you will have to repay part of your Old Age Security pension payment. Delaying your first payment can let you keep more of your pension.
If you are planning on receiving the Guaranteed Income Supplement and your income is less than what you reported on your tax form last year, contact us.
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Limits On Earned Income If Claiming Early Benefits
Until you reach full retirement age, Social Security will subtract money from your retirement check if you exceed a certain amount of earned income for the year. For the year 2021, this limit on earned income is $18,960 . The amount goes up each year. If you are collecting Social Security retirement benefits before full retirement age, your benefits are reduced by $1 for every $2 you earn over the limit. Once you reach full retirement age, there is no limit on the amount of money you may earn and still receive your full Social Security retirement benefit.
Henry is considering claiming early retirement benefits this year, at age 64. Social Security calculates that if he does so, he’ll receive $866 a month . But Henry also intends to continue working part-time, with an income that will be about $5,000 over the yearly limit on earned income. If he does claim the early benefits and makes that part-time income each month, Henry would lose one dollar out of two from the $5,000 he earns over the limit, which means $2,500 for the year. So, by claiming early retirement and continuing to earn over the limit, Henry incurs a double penalty: His retirement benefits are permanently reduced by 13%, and he loses an additional amount every month to the extent he earns over the income limit.
Social Security does not reduce each monthly check by a small amount, unfortunately. Instead, the agency may withhold several months’ entire checks until the reduction is paid off.
The Most And Least Popular Ages To Claim Social Security
- Jim Miller | Savvy Senior
Dear Savvy Senior, How much does your claiming age affect your Social Security benefits, and what are the most popular ages people start taking their retirement benefits? Nearing Retirement
Dear Nearing, You can sign up for Social Security at any time after age 62. However, your monthly payments will be larger for each month you delay claiming them up until age 70. This adds up to about 6 to 8 percent higher payments every year you delay.
To get a breakdown on exactly how much your claiming age affects your benefits, go to Social Securitys Retirement Age Calculator at SSA.gov/benefits/retirement/planner/ageincrease.html. This tool provides your official full retirement age which is between 66 and 67 depending on your birth year and shows how much your benefits will be reduced by taking early payments or increased by delaying them.
In the meantime, heres the rundown of when most people start receiving retirement benefits and how signing up at each age affects your payout.
Age 62: This is the earliest you can sign up for Social Security and the most popular age. About 34 percent of women and 31 percent of men signed up for Social Security at 62. But if you sign up at this age, you will get 25 percent smaller Social Security payments if your FRA is 66, and 30 percent lower payments if your FRA is 67.
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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 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.
If You Were Born Between 1943 And 1954 Your Full Retirement Age Is 66
You can start your Social Security retirement benefits as early as age 62, but the benefit amount you receive will be less than your full retirement benefit amount.
The chart below provides examples of the percentage of your full retirement benefit amount you and your spouse would receive from age 62 up to your full retirement age.
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Spousal Benefits For Divorced Spouses
If you’re divorced, you may be eligible for spousal benefits based on your ex-spouse’s work record. The rules are much the same, plus:
- Your marriage must have lasted for at least 10 years.
- You must currently be unmarried.
If your former spouse hasn’t filed for benefits yet, you can still file for spousal benefits if you have been divorced for at least two years.
If your ex-spouse is still living, in most cases you must be at least 62 years old and your spouse must be old enough to qualify for benefits.
If your ex-spouse has died, your benefits are similar to those of a widow or widower.
How Do Social Security Spousal Benefits Work
You’re eligible for spousal benefits if you’re married, divorced, or widowed and your spouse is or was eligible for Social Security. Spouses and ex-spouses generally are eligible for up to half of the spouse’s entitlement. Widows and widowers can receive up to 100%.
You can claim benefits based on your own work history or on that of your spouse. You’ll automatically get the larger amount.
If you are no more than three months away from age 62, you can apply online or by phone. If you plan to put off applying to get the largest payment possible, wait until you’re no more than three months from full retirement age. That’s 66 or 67, depending on your year of birth.
How Much Does Social Security Pay At 65
The amount Social Security pays older adults partly depends on the wages a senior earned while working. The amount you get each month is also influenced by the age when you first sign up for retirement benefits. As a rule, your benefits get closer to the federal award cap the more youve earned from work and the later you sign up for a Social Security pension.
The Maximum Being Paid Out At 62 65 And 70
If you’re at the maximum taxable earnings limit and you retire in 2018, then the most you can receive in monthly benefits at age 62, 65, and 70 is $2,158, $2,589, and $3,698, respectively.;;
|Maximum Social Security if You Retire in 2018|
Data source: Social Security. Chart by author.
Clearly, waiting to claim Social Security until you’re older pays off. That’s because Social Security will reduce your payment by a fixed percentage for every month you claim prior to reaching your full retirement age, or the age at which you qualify for 100% of your benefit. Full retirement age varies depending on your birthday, but in 2018, it’s 66 years and four months.
If you delay claiming Social Security until after your full retirement age, then your benefit is increased by two-thirds of 1% for every month you wait, up to age 70. If you have fewer than 35 years of work history, waiting also benefits you by increasing your monthly full retirement age benefit amount. Since Social Security uses zeros in its calculation when there are fewer than 35 years, any additional years you work will replace those zeros and increase your benefit.
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Strategies For Maximizing Spousal Benefits
Every married couple has to figure out the best way to maximize their benefits depending on their own circumstances.
The three strategies below will help you make the most of your Social Security spousal benefits, depending on your circumstances. However, keep in mind that, regardless of your circumstances, the most a spouse can get is 50% of the amount that the higher-earning partner is entitled to at full retirement age.
Gaining Back The Reduction In Benefits From Working
The amounts of early retirement benefits you lose as a setoff against your earnings are not necessarily gone forever. When you reach full retirement age, Social Security will recalculate upward the amount of your benefits to take into account the amounts you lost because of the earned income rule. The lost amounts will be made up only partially, however, a little bit each year. It will take up to 15 years to completely recoup your lost benefits. And remember, none of this readjustment will change the permanent percentage reduction in your benefits that was calculated when you claimed early retirement benefits .
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 Is The Maximum Social Security Benefit At Age 70
The numbers start to be a bit better for those who are patient and wait to claim Social Security later. At age 70, the maximum Social Security benefit is $3,790, per month, in 2020. For those who have a comprehensive retirement plan, that will provide a base income that you cannot outlive. Again, if you have earned the revenue required to get the maximum Social Security benefit at age 70, that will still not be enough for you to maintain your standard of living in retirement.
For the vast majority of Americans, when to take Social Security is a choice they get to make. However, those who wait to receive benefits will no longer have a choice once they reach age 70. Thats because 70 is the latest age at which you can start claiming benefits. Even for those fortunate enough to not need the money, they will be forced to claim Social Security at age 70.
If you are still working, claim Social Security at age 70, and use the money to top off your retirement contributions. That is an excellent problem to have. I bet a few of you are rolling your eyes, but I know quite a few people who are still working, by choice, well into their seventies, and I have a few clients who are still working in their eighties. They are fortunate to have careers they love and the health to keep working.;
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Financial Clawbacks When Taking Social Security Before Full Retirement Age
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Your Monthly Social Security Benefits Grow The Longer You Wait To Claim
You can collect Social Security benefits as soon as you turn 62, but taking benefits before your full retirement age results in a permanent benefits reduction of as much as 25% to 30%, depending on your full retirement age.
If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. Or you can keep waiting to claim your Social Security benefits all the way to age 70. There’s a big bonus to delaying your claim — your monthly Social Security benefit will grow by 8% a year until age 70. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.
Waiting to claim your Social Security benefits can benefit your heirs as well. By waiting to take his benefit, a high-earning husband, for example, can ensure that his low-earning wife will receive a much higher survivor benefit in the event he dies before her. That extra income of up to 32% could make a big difference for a widow whose household is down to one Social Security benefit.
How Can You Calculate How Much Waiting Until After Full Retirement Age Will Raise Your Social Security Benefits
If you were born in 1943 or later, here’s how you’d calculate the amount your benefits will increase if you wait until after FRA to claim benefits:
- x .01) x the number of months after FRA that you claim
So if you claim 14 months after FRA, you would see a benefits increase of:
- x .01) x 14 = .0933
This is about a 9.3% benefits increase.
If you were born before 1943, you’d use the percentage from the table above to calculate your benefits increase. You’d simply multiply the appropriate percentage by the number of months you wait to claim benefits. So if you were born in 1941, you’d multiply:
- x .01) x the number of months after FRA that you claim
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