How Much Will The Government Pay You
A while back, I wrote an article on how much money you might get from government benefits.
In the article I stated, The most you will receive from the government is $24,346.44 if you have no other sources of income and only $16,684.92 if you have other sources of income. Clawback and contribution rules may reduce these amounts.
Ive been asked by many readers where these numbers came from so here it is.
First, lets address the $16,684.92. Most Canadians will qualify for some level of Canada Pension Plan and Old Age Security .
At the time the article was written, the most you could collect from CPP was $10,614.96 per year. For Old Age security the most you can get was $6,069.96 per year. Add those numbers together and you get $16,684.92. ;Heres the maximum CPP and OAS amounts for current years:
As of October 2007, the average CPP retirement pension paid out was only $481.46 per month. Thats a lot lower than $884.58 per month because not everybody qualifies for the maximum. Some of the reasons you might not get maximum CPP includes lower contributions because of lower income levels or not contributing for enough years because of starting late into the workforce or maybe you retire early which also means you contribute less into CPP.
Related article: How much will you get from CPP in retirement?
Related article: Should you take CPP early under the new rules?
Related article: Three big changes to OAS
Whats Full Retirement Age
Full retirement age is when youre eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1951 or later, your full retirement age is now some point after age 65all the way up to age 67 for those born after 1959. If you were born before 1951, youve already reached age 66 and full retirement age.
Retirement ages for full Social Security benefits;
If you were born in
Your full retirement age is
1950 or earlier
Survivors Benefits If You Have Children
If your spouse dies and you have children with them under the age of 16, then , you can receive up to 75% of your spouses benefit. Similarly, if your spouse has children under 16 by a previous marriage, that spouse may receive up to 75% of your spouses benefit. Also, each child, up to the age of 18, or 19 if still in secondary school or disabledmay also receive up to 75%.
The maximum a family can receive is up to 180% of the workers PIA. If ex-spouses receive benefits, it does not in any way impact the amount a current spouse will receive . However, if you qualify because you have the workers child in your care, your benefit will affect the amount of the benefits of others on the workers record.
If a spouse or former spouse is not caring for the children of the deceased worker, they may still apply for benefits on their own, if they are at least 60 .
Also Check: How To Find Last Four Of Social Security Number
When Is It Worthwhile To Continue Working While On Social Security For Higher Benefits
In the end, whether or how beneficial it is to continue to work while on Social Security in order;to generate higher Social Security benefits in the future depends heavily on two factors: what income replacement tier the Social Security recipient will be in ; and what the existing earnings history already was . Similar to the consequences of retiring early , the consequences vary depending on where the individual is in the AIME calculation.
What Is Social Security
Social Security is the blanket name for several federal benefit programs that tens of millions of Americans depend on for a monthly stipend. The Social Security Administration pays benefits to eligible seniors, their dependents and survivors and people with certain medical conditions. Though there is some overlap between these groups, the support programs intended for each are separately administered and each has its own eligibility requirements.
Don’t Miss: How Do You Get Social Security Card Replacement
Calculating Average Indexed Monthly Earnings
The caveat to calculating an average of a workers highest 35 years of historical earnings is that in the distant past, earnings were typically lower not just because the worker might have been earlier in his/her career, but simply because inflation lifts average wages over time . For instance, the chart below is an example of one worker’s hypothetical historical earnings, with a high point in the early years but in general a slow upward trend to earnings over time.
Accordingly, when Social Security determines the 35-year average of earnings, it first inflation-adjusts those earnings into current dollars using the National Average Wage Index. Technically, this is done by inflation-indexing all historical earnings into a base year that was 2 years before the individual turned 62 and first became eligible for benefits. Thus, a 62-year-old in 2016 will have historical earnings inflation-adjusted to the 2014 wage index; in general, Social Security benefits are indexed to wage levels 2 years before becoming eligible at age 62, which means indexed to the individuals age 60. This ensures that benefits based on historical average wage calculation isnt indirectly reduced simply due to the fact that wage inflation hadnt yet occurred in the past.
Once inflation-adjusted earnings have been calculated throughout all the working years, its possible to determine which were the highest 35 years of earnings that will be included in the Social Security benefits calculation .
Are You Eligible For Social Security
To be eligible for Social Security benefits, you must earn at least 40 credits over your working career. How those credits are calculated is complex, but you will likely qualify if you have worked for at least 10 years.
You may be entitled to a spousal benefit because of your partner’s work history. If your spouse, ex-spouse, or deceased spouse has earned 40 credits, you may qualify. The Social Security Administration provides more info about this option.
But your work history is not only used as part of the qualification criteria; it is also used to figure out the amount of your payment. In calculating your monthly retirement benefit, the SSA considers your highest-earning 35 years of work history. If you worked for less than 35 years, the SSA will use zero for some years.
The higher your earnings over those 35 years, the greater your contribution to the program through FICA taxes, and the higher your benefit will be.
The same threshold applies to both your earnings and your benefits. This amount is $142,800 in 2021.
Can I Collect Half Of My Spouse’s Social Security At 62
Not quite. The percentage of your spouse’s Social Security that you receive starts at 32.5% at age 62 and steps up gradually to 50% at your full retirement age, 66 or 67 depending on your year of birth. The amount is based on your spouse’s benefit at full retirement age.
The important point is this: Don’t bother delaying past your full retirement age. The amount you receive won’t grow beyond that age.
Social Security Is A Critical Source Of Retirement Income
Some have the perception that Social Security is of secondary or even tertiary importance in retirement. But according to a recent report, Social Security represents a major source of income for 64% of retirees.1
Keep in mind that Social Security makes annual cost-of-living adjustments based on the Consumer Price Index, and under current laws, pays income for life and the life of your spouse.2
You May Like: How Can I Find Out How Much Social Security
Types Of Social Security Benefits
The most widely known benefit the SSA administers is the retirement pension system. More than 64 million older adults receive a monthly payment from this program, and for many people it’s the main or even sole source of support after retirement. Beneficiaries generally become eligible for Social Security pensions at age 62, though the monthly award amount is higher for seniors who delay their retirement age, with the maximum benefit being available at age 67.
If you are the widowed spouse or dependent child of a Social Security recipient, you might be eligible for benefits yourself. The SSA pays tens of millions of Americans a monthly benefit based on their relationship to a formerly eligible beneficiary who has passed away. Speak with an SSA worker to determine whether you are eligible for a survivors pension or similar benefit.
Many Americans with physical or cognitive disabilities receive Social Security benefits as part of a national disability support program. The amount this pays, along with any other conditions on cash support, vary on a case-by-case basis. Likewise, people with very low income may be eligible for the SSAs low-income support program. Together, these programs are known as SSDI/SSI. Ask a program worker about how these benefits may help you or someone you care for.
Chapter : How To Apply For Survivor Benefits
A widow, widower, or surviving divorced spouse cannot apply online for;survivors benefits. You must call Social Security at 1-800-772-1213 ;Alternatively, you can go in person to your local Social Security;field office.
To apply for Social Security survivor benefits, you must have the following documents:
- Proof of death
- Both your own Social Security number and that of the deceased worker
- Your birth certificate
- Your marriage certificate
- Your divorce certificate
- Dependent childrens Social Security numbers, if available, and birth certificates
Did you Know?
Unlike other Social Security benefits, you cannot apply for survivors benefits online. You must call the SSA or go in person to your local Social Security field office.
Applying and ensuring you claim the right benefit at the right time for your personal finances can be confusing. When youre ready to apply, we recommend;using a checklist;to ensure you take the right steps and have the right documentation.
What Is The Maximum Spousal Social Security Benefit
The maximum spousal benefit is 50% of the amount that the spouse is eligible to receive at full retirement age. That’s a cap, by the way. If your spouse delays retiring until 70, the spouse gets more but you don’t.
Survivors may receive up to 100% of the deceased person’s Social Security amount. There’s a complicated formula for families in which more than one dependant is eligible for benefits. It caps the maximum.
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.
You May Like: How To Replace My Lost Social Security Card
How Much Can You Earn And Still Collect Survivor Benefits
While it can seem unfair to not be able to fully claim both your own and your survivor benefits, there are;claiming strategies to maximize what you receive. This includes switching from one benefit to the other. See an example from one of our users directly below.
Making the right decision on how to maximize your own benefits depends on how much your own retirement benefit vs. survivor benefit would be, and how long you think you will be living and needing the money. It also depends on whether youre working.
Let us help with the paperwork
Digitizing receipts, bills & important documents has never been easier. Download the Smart Filing Cabinet to start organizing your documents today.
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.
Don’t Miss: How To Call Social Security
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 Can I Switch From My Social Security Benefit To A Spousal Benefit
Say you start collecting Social Security benefits at age 62 based on your own work history. Your spouse keeps working and delays filing until age 70. If your spousal entitlement is higher, you can switch to that. The spouse will get the maximum amount while you’ll get 50% of the amount the spouse would have received at full retirement age.
To monitor your benefits or change them, you can create an account on the Social Security site. It contains a wealth of information and it allows you to make some changes online, although others require a phone call.
You May Like: How To Change Your Name On Your Social Security Card
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.
Social Security And Working: You Will Always Pay Social Security Taxes
No matter your full retirement age and whether or not you are paying work penalties or not, if you are working, you will continue to pay Social Security taxes on your earnings.
The good news here is that your additional earnings could potentially increase your Social Security benefit amount.; Social Security will check your record every year and will notify you if you have achieved a higher benefit amount.
Also Check: How To Change Social Security Name When Married
Claiming Social Security At Age 66
If you were born between 1943 and 1954, your;Full Retirement Age;is 66. Claiming at your;Full Retirement Age;will entitle you to your full benefit amount, but you can still wait to claim. If you wait further, you will garner delayed retirement benefits, which will increase your monthly benefit when you do start collecting.
At Full Retirement Age you can work without any deductions from your benefit amount. However, you may still be;taxed on your benefit;if you have other substantial income such as wages, self-employment, interest, or dividends. If so, the Internal Revenue Service taxes your combined income which is your adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits.
If you file a federal tax return as an individual and your combined income is between $25,000 and $34,000, you will have to pay income tax on up to half your benefits. If your income is more than $34,000, up to 85 percent of your benefits might be taxable.
If you are married and file a joint return, and your income together is between $32,000 and $44,000, you may have to pay income tax on up to half your benefits. If your income exceeds $44,000 you may have to pay income tax on up to 85 percent of your benefits.