Spouses And Social Security
You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is up to 35% while the reduction for claiming your own benefit is up to 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.
Not married? Read Viewpoints on Fidelity.com: Social Security tips for singles
Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be up to 30% less for the remainder of their lifetime.
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.
How Much Do You Have To Earn To Get Maximum Social Security
In 2021, the maximum monthly payment you can receive at full retirement age is $3,113. Using the current bend points, that means that you would need to earn about $120,000 per year to reach the maximum benefit level. The maximum Social Security payroll tax per year is $17,707.20. This equates to roughly $140,000 of taxable income.
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Withholding Thresholds For Early Filers Are Climbing
Working Americans might not realize it, but filing for retirement benefits before hitting full retirement age comes with some drawbacks. Aside from a permanently reduced monthly payout, it can also expose beneficiaries to the retirement earnings test. The retirement earnings test allows the SSA to withhold some or all of a beneficiaries’ payout if they earn above predetermined income thresholds.
As an example, early filers who won’t hit their full retirement age in 2021 can have $1 in benefits withheld for every $2 in earned income above $18,960 . Meanwhile, early filers who will hit their FRA in 2021 are allowed to earn up to $50,520 before $1 in benefits can be withheld for every $3 in earned income above this threshold.
In 2022, both of these income threshold levels are increasing. Early filers who won’t hit their FRA will be allowed to net $19,560 before benefit withholding kicks in. As for retired workers who will hit their FRA next year, the income threshold is rising to $51,960 .
Keep in mind that the retirement earnings test no longer applies once a person hits their full retirement age.
How Your Retirement Age Affects How Much Youll Receive
Perhaps the most significant factor on how much you will receive in Social Security benefits each month is the age you retire at and start collecting benefits. What you receive when you start taking payments is what youll receive for the rest of your life, so its important to put some thought into deciding when to retire.
Depending on the year you were born, the full retirement age is 65 to 67. If you start collecting benefits then, youll get the amount calculated in the Social Security formula each month.
You can start getting benefits at age 62, but you wont receive the whole monthly amount youre entitled to. If you take your benefits early, you can expect to get about 75 percent of what you would have if you waited. Your benefits are reduced by a fraction of a percent for every month you take early payments.
Taking a late retirement swings things in the opposite direction. If you wait until the age of 70 to start drawing benefits, youll get about 30 percent more than you would have at full retirement age.
Remember there is no best age for retirement, as each persons finances are different. Taking early, full, or late retirement all end up paying out about the same amount of money over time.
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How Much Social Security Will I Get
For most people, Social Security makes up just under half of their retirement income, so its an integral part of planning for your future. But how do you know how much Social Security you will get?
The government used to make it easy, mailing out annual Social Security statements with an estimate of a persons potential benefits. But once those mailings stopped in 2011, many people have no idea how to determine what their benefits would be.
Fortunately, its not difficult to figure out how much you will receive in Social Security benefits. There are a few ways to see the exact amount youll be getting and a few ways to get a good estimate.
What About The Government Pension Offset
The nitty-gritty of the Government Pension Offset is simple. If you meet both of requirements for the GPO you are entitled to a Social Security benefit as a survivor or spouse and have a pension from a government job where you did not pay Social Security tax your Social Security survivor or spousal benefit will be reduced by an amount equal to two-thirds of your pension.
As an example, lets say Michael worked for 30 years as a teacher in California and his wife was an accountant.
Upon retirement, he began receiving his California teachers retirement pension of $3,000 per month. His wife retired at the same time and filed for her Social Security benefits of $2,300 per month. Sadly, she passed away a short three years later.
Upon her death, Michael learned that because of his CalSTRS pension he would not be eligible to receive a normal Social Security survivors benefit. Thanks to the GPO his survivors benefit was reduced to a measly $300 per month. Heres the math:
Some would say thats not fair and I think they have a compelling point. Why? In a case like this the GPO only applies because of Michaels chosen profession. This is effectively a penalty for teaching .
If he had been a pharmacist instead of working in education, he would have been eligible to receive the full $2,200 per month.
If youd like to dig into the Government Pension Offset a little deeper, see my article on What You Should Know About the Government Pension Offset.
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How Much Of Your Needs Will Social Security Cover
So how much of your particular income needs will Social Security cover? Well, it depends on how much Social Security income you expect to receive, and how much income you expect to need in retirement. It’s worth spending a little time with paper and pencil to arrive at an educated guess about how much income you’ll need.
Be as thorough as you can in your thinking, factoring in not just food and housing, but also utilities, taxes, insurance, transportation, internet and phone costs, travel, gifts, clothing, hobbies, and so on. Don’t forget healthcare, which by one estimate from Fidelity Investments will cost an average of $300,000 throughout retirement for a 65-year-old couple retiring today. There are ways to keep healthcare costs down, such as staying as healthy as possible, so aim to do what you can. And otherwise, try to factor in major expected healthcare costs, just to be on the safe side.
If you determine that you’ll need around $80,000 annually in retirement and you are expecting to receive around $30,000 in Social Security benefits, that leaves $50,000 in income that you need to generate on your own, perhaps via a combination of investments, dividend income, an annuity, and if you’re lucky, a pension. If you’re married or in a household with multiple retired people, your financial life should be a bit easier, with multiple Social Security checks arriving each month.
Should You Jump On The Retirement Bandwagon
If you’re thinking about retiring, an estimated 6% COLA hike might tempt you to throw in the towel at work and claim Social Security benefits at 62. But heres why you dont want to do that.
And she uncovered something most people don’t know.
Her take is that anyone who is age 62 or older in 2022 and who is eligible for Social Security will profit from next years COLA even if they have not yet filed for benefits.
I worry that some people may rush to claim Social Security this year to benefit from the exceptionally large cost-of-living adjustment expected next January,” Franklin told me by email.
“Im sure most people do not realize that they automatically will benefit from next years COLA even if they have not yet filed for Social Security as long as they are at least 62 or older in 2022,” said Franklin, who wrote “Maximizing Social Security Benefits,” an online book that is available for $29.95 at MaximizingSocialSecurityBenefits.com.
If there are future inflation adjustments, she noted, those who are 62 and older would see inflation adjustments baked into future payments each year until they claim benefits all the way up to when they reach age 70.
She points out that the Social Security Administration notes: “Youre eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you dont get benefits until your full retirement age or even age 70.”
Those who turn 62 next year and afterward face another issue, too.
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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.
How Much Will Social Security Pay You
Many retirees depend on Social Security benefits for a large portion of their monthly income after retirement. If you are nearing retirement age, youre probably wondering, How much does Social Security pay? On the other hand, if you become disabled and unable to work, will Social Security disability payments be enough to get you by? While the exact formula to calculating your payments is highly secretive, there are some ways that you can estimate your payments accurately. There are a number of factors that go into this calculation such as your earnings history, work credits, retirement age, and age at which you begin receiving benefits. Using the steps outlined in this article, you should understand how Social Security payments work and how much you can expect to receive when you begin your benefits.
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Gen X: Plan On A 10% Reduction
If you were born 1965 through 1980, planning for your retirement income becomes more important than ever, warns Mantell.
Elsasser recommends planning on a 10% reduction in your Social Security benefits and doing retirement projection that includes a reduced Social Security amount to balance your lifestyle today with the lifestyle youd like to live in retirement.
The good news about this bad news? For the 65 million of you who are between the ages of 41 and 56, you are in your peak earnings years, says Mantell. And that means you can and will need to ramp up your personal savings.
Youll be well-served to rethink, rebudget and redesign your spending and your savings strategy in case Social Security delivers less in income than currently projected, she cautions. You have time on your side, and every $1,000 or $2,000 or $5,000 you can sock away now will increase your income for retirement and balance out the trade-offs that you may have to make.
And whats the worst-scenario if you ramp up your savings and theres cut in Social Security benefits? You end up with more than you need, says Elsasser.
Your Social Security Full Retirement Age Plays A Big Role Know It
First things first:Determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, 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.
Calculating How The Wep Will Affect You
I know this is a lot to follow, so if you want to take a shortcut in figuring out how the impact of the WEP, you may want to use my free calculator.
This calculator will tell you:
- The amount of monthly Social Security benefit you can expect after the WEP reduction .
- The number of substantial earnings years you already have
- How additional years of substantial earnings will affect the WEP penalty
To use this calculator youll need to get a copy of your earnings history from the SSA. You should only put in your years of earnings that were covered by Social Security.
- My article on the potential repeal of the WEP
Are You Saving Enough For Retirement
Its never too soon to start saving for retirement. When you have a spouse, children, a mortgage and college tuition to think about, competing financial priorities can make it more challenging to save for your retirement years. However, each year you delay saving for your retirement means facing the financial burden of catching up with your savings down the road if you want to achieve your retirement objectives. Are you curious about whether your retirement savings are on track for your age? Here are some average retirement savings by age to help you gauge your progress. By using our Retirement Savings Calculator, you can figure out how long your current savings might last you in retirement and what additional annual savings may be necessary to meet your goals.
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Claiming Social Security At Age 65
Those whose Full Retirement Age is 65 are already that age or older. For those born after 1955 and before 1960, Full Retirement Age is 66 and some months. By retiring at age 65, those beneficiaries lose at least 12 months worth of increases. For those born in 1960 or after, Full Retirement Age is 67, so they lose up to 24 months of increases if they retire at age 65.
Below, we show how a person born in 1960 and entitled to a full benefit of $2,500 could see his or her monthly benefit change based on claiming age:
Look Outside Of Those Benefits
The money you receive from Social Security may end up making a huge difference for your retirement. But if you don’t secure another income stream, you may be forced to live on very little. Funding an IRA or 401 could be your ticket to financial security as a senior, but if you’re not looking at much in the way of savings, have another backup plan so you don’t wind up cash-strapped.
The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
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