How Many Years Do I Have To Work To Get Social Security
Retirement benefits are earned by working and earning credits as you contribute to Social Security. The number of credits you need depends on your age and the type of benefits you are looking for. Anyone born in 1929 or later needs 10 years of work, which will equal 40 credits, to be eligible for retirement benefits. You earn Social Security credits when you work and pay into the system through your FICA payroll taxes.
Social Security bases your credits on your earnings. As an example, for 2020 you will receive one credit for each $1410 of earnings. You can earn up to 4 credits a year. You do not get additional credits if you earn more.
Everything you have contributed to Social Security over the years counts towards your eventual benefits. Each year the amount required to earn a credit goes up slightly so each year the earning requirement to earn your credits is different.
Option : Wait Until Age 70 To Claim Social Security Benefits
Technically, you can begin drawing Social Security retirement benefits at age 62. The catch, however, is that this will reduce your benefit amount. You can avoid this scenario by waiting until your full retirement age to begin taking benefits. This is 66 or 67 for most people, depending on when you were born.
But theres a third option: Delay benefits until age 70. In doing so, you can get a Social Security bonus in the form of a higher benefit amount. The bonus is worth roughly 8% more for each year you delay benefits past full retirement age.
Waiting until age 70 to claim Social Security benefits can result in a larger check but you have to consider how realistic that option is. If you plan to keep working until age 70 or beyond, then you may not need to tap into your 401, IRA or other assets to cover your expenses. But if you plan to retire at 65, youll have a five-year gap in which youll need to draw on your assets for income.
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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Timing And Your Health Coverage
Your health insurance coverage can also play a role in deciding when to claim Social Security benefits. Do you have a health savings account to which you would like to keep contributing? If so, note that if youre age 65 or older, then receiving Social Security benefits requires you to sign up for Medicare Part A, and once you sign up for Medicare Part A, youll no longer be allowed to add funds to your HSA.
The SSA also cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D.
In 2022, the average monthly premium for Part D will be $33 per month versus $31.47 in 2021. If you enroll in a Medicare Advantage plan, the average monthly premium will be $19 per month in 2022 versus $21.22 in 2021. However, if you are still receiving health insurance from your or your spouses employer, you might not yet have to enroll in Medicare.
As of Oct. 16, 2021, Social Security offices are only open by appointment, and to get an appointment you need to be in a limited, critical situation. Most people will have to transact their business online, by phone, or through the mail.
What Age Do I Need To Start Worrying About Social Security
Most workers know the basics about Social Security but dont have an intimate understanding of how the program operates. Social Security is not some static retirement income program that guarantees a pot of gold at the end of your career. Rather, Social Security is ever-evolving, and the system thats in place today might be significantly different by the time you actually retire. At various phases of your career, there are certain aspects of Social Security that you should pay particular attention to.
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What About Taxes On Social Security
Keep in mind that Social Security benefits may be taxable, depending on your combined income. Your combined income is equal to your adjusted gross income , plus non-taxable interest payments , plus half of your Social Security benefit.
As your combined income increases above a certain threshold , more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
Youll Get A Bigger Monthly Social Security Check If You Wait Until 70
Claiming Social Security before you reach full retirement age will result in a reduction in benefits as much as 25% to 30% less than you would have received if you had waited. That reduction is permanent.
Instead, if you wait to take your benefits until after your FRA, Social Security will add an 8% delayed retirement credit to your eventual monthly payout each year you hold off, up until age 70.
Thats a guaranteed return of 8% per year of deferral after your FRA, which could be more than you might receive with any other fixed products right now. Its definitely more than the cost of living adjustments that Social Security beneficiaries have been getting for the past decade, which have averaged about 1.5% a year.
Those COLA increases are not always enough to keep up with true inflation. And, when there is a COLA for Social Security, it may be coupled with a Medicare premium increase.
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Benefit Amounts Vary Depending On Your Social Security Retirement Age
Your Social Security retirement age and the amount you receive varies depending on several factors. For example, the earliest age you can collect your Social Security retirement benefits is 62, but there is an exception for widows and widowers, who can begin benefits as early as 60. If you start collecting benefits early and continue to work, your benefits may be reduced.
Here’s how this works with the basics on Social Security claiming ages from 60 to 70.
How Work May Affect Your Benefits
If you were born January 2, 1958, through January 1, 1959, then your fullretirement age for retirement insurance benefits is 66 and 8 months. If you work and are full retirement age or older, you may keep all of your benefits, no matter how much you earn. If youre younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. And if youre younger than full retirement age during all of 2020, $1 will be deducted from your benefits for each $2 you earn above $18,240.
One important consequence to remember is this can also mean higher Medicare premiums and higher taxes. You want to make sure you look at all aspects of your financial situation when deciding to continue work after full retirement age.
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How Full Retirement Age Impacts Your Social Security Benefits
When you claim Social Security benefits earlybefore your full retirement ageyour total monthly benefit is decreased by a small percentage of your PIA for each month until your full retirement age. Conversely when you delay claiming benefits until after your full retirement age, it boosts your monthly benefit payment by a small percentage of your PIAup to the year you turn 70.
Your Social Security benefit is reduced by around half a percent for each month between the date when you claim benefits early and your full retirement age. At the very most, you could see a reduction of up to 30% of your PIA by claiming benefits before reaching full retirement age. A PIA of $2,000, for example, could be cut to $1,400 if you take your benefit as soon as you are eligible, rather than waiting for full retirement age.
On the other hand, delaying Social Security benefits until after your full retirement age could garner you a larger monthly benefit.
For every month after full retirement age, you add two-thirds of 1% per month up until you attain age 70, says Carroll. This means an increase of up to 8% per year that you delay taking benefits between full retirement age and age 70. For a beneficiary with a full retirement age of 66 and 6 months, a PIA of $2,000 could be increased to $2,600 by waiting to take benefits until age 70.
Social Security disability benefits do not have any specific retirement age, since disability can strike at any age.
What Is The Penalty For Retiring At 62
A worker can choose to retire as early as age 62, but doing so may result in a reduction of as much as 30 percent. Starting to receive benefits after normal retirement age may result in larger benefits. With delayed retirement credits, a person can receive his or her largest benefit by retiring at age 70.
The Downside Of Claiming Early: Reduced Benefits
Consider the following hypothetical example. Colleen is 62 as of 2022. If Colleen waits until age 67 to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, she’ll receive only $1,400 a month. This “early retirement” penalty is permanent and results in her receiving up to 30% less year after year.
However, if Colleen waits until age 70, her monthly benefits will increase another 24% over what she would receive at her FRA, to a total of $2,480 per month.1 If she were to live to age 89, her lifetime benefits would be about $112,000 more, or at least 24% greater, because she waited until age 70 to collect Social Security benefits.2
How Does This Impact New Retirees
To understand the impact of the changes to full retirement age and to see why it matters that these changes will no longer affect newly eligible beneficiaries it’s helpful to take a look at some examples.
The table below shows exactly when FRA is based on birth year:
Data source: Social Security Administration
So for anyone who turns 62 in 2022 or beyond, full retirement age will be 67. These seniors must wait until then to avoid early filing penalties. By contrast, those who turned 62 last year could get their standard benefit at 66 and 10 months, while those who hit this milestone in 2020 were able to claim at 66 and 8 months and not face penalties.
Now, there’s a chance Congress could make further modifications to Social Security and shift FRA even later for future retirees. But unless that happens, anyone who who first becomes eligible for Social Security retirement benefits this year or in the future will no longer need to delay the start of their Social Security checks longer than their older peers just to get the full benefits they earned over their lifetime of work.
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Are Social Security Benefits Taxable At Full Retirement Age
Your age does not have an impact on whether you will owe tax on Social Security benefits. Depending on your earnings, you may pay federal taxes on Social Security benefits regardless of the age at which you claim.
Social Security benefits are taxed on amounts exceeding the “provisional income” limit set by the IRS. To calculate your provisional income, add up all non-Social Security sources of income, including nontaxable income such as municipal bond interest, and include half of your annual Social Security income.
Single filers earning provisional income between $25,000 and $34,000 and married joint filers earning between $32,000 and $44,000 will owe income taxes on 50% of their Social Security benefits. For single filers with provisional income above $34,000 and married filers above $44,000, up to 85% of Social Security benefits will be taxable.
Reasons You Should Claim Social Security Early
Learn why Social Security at 62 might not be a bad idea. Social Security 101
Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can have a big impact on your planning. The earliest you can collect is age 62, but youll get more money if you delay your benefits past your initial Social Security eligibility. If you wait until after your full retirement age to start collecting Social Security you can earn delayed retirement credits, which will increase your benefits even more.
You might think that waiting for bigger benefits is better, but thats not always the case. There is no definitive answer to when you should collect Social Security benefits, and taking them as soon as you hit the early retirement age of 62 might be the best financial move.
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Tips For Ensuring A Comfortable Retirement
- If you want to build a retirement plan, a financial advisor can help you reach your retirement goals. SmartAssets free tool can pair you with advisors in your area based on your needs. Get started now.
- Save, save, save. To be able to put off taking Social Security benefits until youre 70, youll need to have enough stashed away to live off of until then. Our retirement calculator can help you figure out how much youll need to save to retire comfortably.
- Start saving early, and take advantage of employer matches. With our 401 calculator, you can see how much your 401 will be worth when you reach retirement.
- Think hard about where you want to retire. Not all states are equally tax-friendly to retirees. Use our retirement tax-friendliness tool to see how tax-friendly your home state is, and whether Social Security benefits are taxable at the state level there.
The Social Security Retirement Age Increases In 2022
While you can start Social Security payments at age 62, your monthly checks are reduced if you begin collecting benefits at this age. To claim your full benefit, you need to at your full retirement age, which varies by birth year.
Here’s a look at how the Social Security retirement age is changing, and what this means for your retirement payments:
— An older Social Security full retirement age.
— A bigger reduction if you claim Social Security early.
— Less of a benefit for delaying claiming Social Security.
— The Medicare eligibility age remains the same.
— You need to carefully determine the optimal age to start Social Security.
An Older Social Security Full Retirement Age
The full retirement age used to be 65 for those born in 1937 or earlier. Those born between 1943 and 1954 have a full retirement age of 66. The full retirement age further increases in two-month increments each year to 66 and 10 months for those born in 1959, up from 66 and eight months for those with a birth year of 1958.
The full retirement age for those who turn age 62 in 2022, born in 1960, is 67. The full retirement age will remain age 67 for everyone born in 1960 or later.
A Bigger Reduction If You Claim Social Security Early
Workers who are eligible for Social Security can start payments at age 62, regardless of their full retirement age. However, the benefit reduction for early claiming is bigger for those who have an older retirement age.
The Medicare Eligibility Age Remains the Same
Your Monthly Benefit May Not Be $4194 But There Are Ways To Boost The Amount You Get
If you’re assuming the topic of Social Security is boring, think again. There’s a good chance that Social Security will provide some 25% or 50% or more of your entire income in retirement. So it’s kind of important.
Once you start thinking about it, you might wonder just how much you can expect from Social Security and what’s the most you can hope for. The maximum monthly benefit was recently set at $4,194 per month.
Option : Make The Most Of Cola Increases
Social Security recipients can get an increase in benefits without doing anything at all. Cost of living adjustments issued by the government are designed to increase monthly Social Security benefit amounts in order to help retirees keep pace with inflation. For example, benefits rose by 5.9% for approximately 70 million Americans in 2022 thanks to a cost of living adjustment.
This Social Security bonus isnt really a bonus its the Social Security Administrations way of helping seniors counter rising consumer prices. And COLA increases dont always match the overall rate of inflation. But getting an increase can give you more income to base your retirement budget on. That can be helpful if you find yourself paying more for healthcare or medications as you get older.
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