Social Security In The Us
Before Social Security , care for the elderly or disabled in the U.S. wasn’t a federal responsibility if they weren’t cared for by family, it fell into the hands of municipalities or states. This changed in 1935 when the Social Security Act was first established in the U.S. by President Franklin Roosevelt. The first taxes were collected starting in January 1937, which enabled monetary assistance to qualified Americans with inadequate or no income. Originally, SS was just a program that paid out retirement benefits, but a 1939 change added survivors benefits for a retiree’s spouse and children. In addition, in 1956, disability benefits were added.
Today, SS in the U.S. plays a very important role in keeping a lot of older Americans out of poverty. For most Americans in retirement, it is their major source of income, and for a significant percentage, it is their only source of income, even though SS was never intended to be a full replacement of income. On average, SS pays lower-wage earners higher relative benefits than higher-wage earners. In addition, lower-wage earners tend to pay less tax and are more likely to receive social insurance disability income and survivor benefits. SS is sometimes referred to as Old Age, Survivors, and Disability Insurance .
Social Security Facts
Heres How Working After 62 Can Change Your Social Security Benefits
Continuing to work after age 62 can affect your level of Social Security retirement benefits, whether you are receiving benefits at the time or not. Knowing how continuing to work might change benefit levels can lead to better decisions about when to claim benefits and whether to continue working.
You can begin claiming Social Security retirement benefits as early as age 62, whether you are working or not. You know that the level of benefits increases for each year you wait to claim them through age 70. Theres no benefit for delaying claiming past age 70. In addition, the level of benefits might increase if you continue working after 62, whether you claim benefits at 62 or later.
Social Security retirement benefits are calculated using your 35 highest-earning years. If you dont have 35 years of earnings, youll be assigned an income of $0 for each of the missing years. After you turn 62, Social Security recalculates your benefits every year that you dont claim benefits. It will take your earnings for the latest year, add that to your record of lifetime earnings and select the 35 years with the highest inflation-adjusted earnings. Those are the only details of how benefits are calculated you need for this discussion.
When claim Social Security retirement benefits and continue to work, the effects are more complicated.
You Need To Pay Down Debt
There are some debts you need to tackle before you retire. If you have high-interest debt, claiming Social Security early can help you pay the debt down. Depending on the interest rate youre paying, the 8% yearly boost to your benefits that you receive for each year you wait past full retirement age might not be worth the increased monthly benefit. Using the early benefits to reduce or eliminate your debt earlier could mean youll be able to keep more of your benefits in the future.
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Special Rule As You Approach Full Retirement Age
If you are already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age . If you will reach full retirement age in 2021, you can earn up to $4,210 per month without losing any of your benefits, up until the month you turn 66. But for every $3 you earn over that amount in any month, you will lose $1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.
If you are self-employed, you may receive full benefits for any month during this first year in which you did not perform what Social Security considers “substantial services.” The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month . In other words, if you work in your business more than 45 hours in a month, Social Security may reduce your benefit.
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.
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How Much Social Security Will I Get At Age 63
Although the earliest full retirement age is 66, you can start collecting the benefits at age 63. However, applying for Social Security benefits before the full retirement age will reduce your monthly benefit amount.
If you start collecting the benefits at age 63 when your full retirement age is 66, you would only receive 80 percent of what you would be eligible for at full retirement. Similarly, if you start taking the benefits at 63 when your full retirement age is 67, you would only receive 75 percent of your eligible amount at full retirement.
Recently, the average monthly Social Security retirement payment was $1,565. The maximum amount is $3,895. The Social Security monthly benefit amount gets adjusted annually in step with inflation. In 2022, the monthly benefit amount will increase by about 6 percent. That will add more than $90 to average earners’ checks and more than $200 to the top earners.
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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.
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Americans who have earned 40 credits toward claiming Social Security retirement benefits can choose to start receiving their hard-earned entitlement before reaching full retirement age. Those who are 62 can choose to file for retirement benefits.
However, doing so could permanently reduce their future monthly payments by almost 30 percent. So how much can you expect to get depending on your age when you retire?
How To Claim Social Security At 65
If you are eligible for Social Security benefits of any kind, you can apply in several ways. The SSA offers online enrollment through its website, where seniors and their surviving spouses and dependents can download and submit application forms.
Seniors can also apply for Social Security over the phone by calling 772-1213 325-0778). In 2020, Social Security offices may be closed to the general public in response to the COVID-19 pandemic, though most offices do remain open for in-person visits by appointment only.
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What Are The Maximum Amounts That You Can Get
The average Social Security retirement benefit in 2021 is $1,565 a month but will be quite a bit higher in 2022 due to the cost-of-living-adjustment 2022 announced on Wednesday. Beneficiaries will see a 5.9 percent increase in the monthly payments kicking the average up to $1,657, or an increase of $92.
If you turn 62 next year, you can start to claim benefits after you have been 62 for a full month. The maximum you could expect to earn is $2,461 after the increase in 2022. However, starting retirement early may limit the amount that you can get since you will be receiving them for a longer period of time.
If you wait until you reach full retirement age , the maximum that you could receive is $3,334 after the correction for the COLA 2022. Full retirement age for those born in 1955 is 66 years and 2 months. For those born in each subsequent year you need to add two months per year until those born in 1960 and after reach full retirement age when they turn 70.
Currently, those who turn 70 in 2022 could see their maximum potential benefit go up to $4,220. You can check your own estimated monthly benefits using the Social Security Administration online calculator tool. You will need to know your annual income for the past 35 years or use an estimate.
Social Security Bend Points
The Social Security benefits formula is designed to replace a higher proportion of income for low-income earners than for high-income earners. To do that, the formula uses what are called bend points.” These bend points are adjusted for inflation each year.
Bend points from the year you turn 62 are used to calculate your Social Security retirement benefits. The example in the table below uses 2020 bend points. It works like this:
- You take 90% of the first $906 of AIME.
- You take 32% of the next $5,785 of AIME.
- You take 15% of any amount over that $5,785.
- You total those three numbers.
The result is your primary insurance amount, or PIA, the amount you will receive if you begin benefits at your Full Retirement Age .
Your PIA is rounded to the next lowest dime, and your benefit amount is rounded to the next lowest dollar.
Technically, your PIA is calculated, rounded to the next lowest dime, and then any inflation adjustments are applied. That number is then rounded to the next lowest dime. Then any increase or decrease based on age is applied. That number is then rounded down to the next lowest dollar.
You can see current and historical bend points and the current year’s bend points on the Bend Formula Bend Points page of the Social Security Administration’s website.
In the example in the table below, you can see how the AIME calculated in the previous step was plugged into the bend point formula to calculate the PIA.
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Youre Concerned Social Security Will Disappear
Some people are concerned about potential Social Security changes in the future, such as higher retirement ages, lower benefits or higher taxes on benefits. As a result, they want to take the sure thing as soon as possible. In a 2017 Social Security summary, the government said Social Security trust funds will be depleted in 2034. Even then, however, annual Social Security taxes are projected to keep benefits at almost three-fourths of current levels.
Maximum Social Security Benefits Example
Say that someone who turned 62 in 2021 will reach FRA at 66 years and 10 months, with earnings that make them eligible at that point for a monthly benefit of $1,000. Opting to receive benefits at age 62 will reduce their monthly benefit by 29.2% to $708 to account for the longer time they could receive benefits, according to the Social Security Administration . That decrease is usually permanent.
If that same person waits to get benefits until age 70, their monthly benefit increases to $1,253. The larger amount is due to the delayed retirement credits earned for the decision to postpone receiving benefits past FRA. In this example, that higher amount at age 70 is about 77% more than the benefit they would receive each month if benefits started at age 62, or a difference of $545 each month.
Of course, the best time for someone to start taking Social Security benefits depends on a variety of factors, not just the dollar amount of the benefit. Things such as current income and employment status, other available retirement funds, and life expectancy must also be factored into the decision.
The Social Security Administration has several calculators to help you estimate your benefits.
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Before You Make Your Decision
There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:
- If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
- That there are other things to consider when making the decision about when to begin receiving your retirement benefits.
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.
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How Much You’ll Get In Social Security
Below we round up how much you may get in Social Security a month depending on your salary throughout your career.
This is based on the easy-to-use calculator by the Consumer Financial Protection Bureau, but be aware the numbers are only rough estimates.
The calculator bases benefit estimates on current formulas from the Social Security Administration, meaning the 2022 figures aren’t yet included.
Average yearly salary of $25,000
- Claim at age of 62: $774 a month
- Claim at FRA of 67: $1,099 a month
- Claim at age of 70: $1,363 a month
Average yearly salary of $50,000
- Claim at age of 62: $1,130 a month
- Claim at FRA of 67: $1,605 a month
- Claim at age of 70: $1,990 a month
Average yearly salary of $75,000
- Claim at age of 62: $1,486 a month
- Claim at FRA of 67: $2,111 a month
- Claim at age of 70: $2,618 a month
Average yearly salary of $100,000
- Claim at age of 62: $1,824 a month
- Claim at FRA of 67: $2,591 a month
- Claim at age of 70: $3,213 a month
Average yearly salary of $150,000
- Claim at age of 62: $2,148 a month
- Claim at FRA of 67: $3,050 a month
- Claim at age of 70: $3,782 a month
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Why It Makes Sense For The Higher Earner To Wait Longer To Collect
David and Linda are married. David’s primary insurance amount at full retirement age is $1,600 Linda’s is $1,450. They both have an FRA of 67.
If they both wait until 68 to collect, which means their benefits will increase by 8%, David’s benefits will be $1,728 , and Linda’s will be $1,566 .
That extra $12 per month means an extra $144 per year, or $2,880 over 20 years.
In addition, the spouse who lives longer will continue to collect the higher payments.
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What If I Take Benefits Early
If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.
If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.
For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and 2 months you elect to start benefits at age 62, the reduced benefit calculation is based on 50 months. This means that the reduction for the first 36 months is 20% and 5.83% for the remaining 14 months. Overall, your benefits would be permanently reduced by 25.83%.