Wednesday, August 10, 2022

How To Initiate Social Security Benefits

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When is the Best Time to Start Claiming Social Security Benefits?

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When you retire, a lot of questions cross your mind. The first question you should ask is when to claim social security benefits. See our article on When to Claim Social Security Benefits.

The next question after you decide to claim is: how long does it take to get my first social security check? It would be prudent to start by knowing how long it takes to apply for social security online. To your relief, the process will not take a lot of your time. Once your application is done and submitted, you will be wondering how long it takes to get social security approval.

Typically, it takes 6 weeks to process your application and for the benefits to start. However, it will take longer if you submit incorrect information. Also, the duration for approval will depend on the number of submissions the Social Security Administration will be processing at the time. Overall, the wait time is at least six weeks or longer depending on a number of factors.

Mandatory Information

You will need your social security number, birth certificate, and supporting financial documents when you apply. Tax return evidence and W-2 forms are also required for self-employed applicants.

For those not born in the USA, you should provide proof of citizenship. A certificate of citizenship or passport will be adequate. Also, marital information will be required.

Luckily, all these documents are not required at once when you apply. The SSA will send you notifications when they are required.

You Expect Your Investments To Grow Faster Than The Increased Benefit

If you’re the next Warren Buffet, it’s possible you could do better taking Social Security early and investing the money than you could by waiting to take a larger benefit later. When weighing the best decision, consider the inflation rate, the rate your benefits increase and how much you can expect to earn in your portfolio. Given that benefits increase by 8% per year for each year you wait after full retirement age, however, it’s hard to outperform that rate of increase in the market. These safe investments do have high returns.

How Fra Is Changing If You’re Turning 66 In 2022

Amendments to Social Security in 1983 slowly phased in a change to FRA. As the chart below shows, here is when full retirement age is, based on the year you were born.

Birth Year

Data source: Social Security Administration.

As you can see, if you’ll celebrate your 66th birthday in 2022, your FRA will be 66 and four months — two full months later than it was for people who turned 66 last year and four months after most retirees who came before you.

The result of this change is that if you want your full benefit without any penalties imposed, you’ll have to wait for an extra two months in order to get it. This, unfortunately, is a de facto benefits cut, since you’re faced with either giving up two months of income this year or accepting less in each monthly check going forward.

It also means that if you max out your delayed retirement credits, you’ll still get two fewer months of them versus what retirees in previous years could earn. So the amount you can expand your benefits by waiting to file for them is reduced.

Make sure you’re aware of this big change when you make your decision about when to start Social Security checks — and when calculating how much income your monthly benefits can provide.

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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.

Tax Considerations For Social Security Benefits

Key Considerations as You Start Receiving Social Security Benefits ...

How do these tax considerations affect when you should apply for Social Security benefits? At todays , they may not have much of an impact on most people. Still, tax rates and income thresholds can change, so its worth remembering that you will lose less of your Social Security to taxes if you are in a lower marginal tax bracket when you begin to collect.

You should also note that if you decide to return to work, even part-time, and arent yet at your FRA, your Social Security benefits may be temporarily reduced. The reduction is $1 for every $2 of earned income over $18,960 in 2021 . During the year when you reach your FRA, your benefits will be reduced by $1 for every $3 in income over $50,520 in 2021 until the month when you become fully eligible. That money isnt lost, however. The SSA will credit it to your record when you reach your FRA, resulting in a higher benefit.

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How Long Does It Normally Take To Get Approved For Social Security Benefits

The Social Security approval process is relatively speedy, but as it is a government program with a huge number of applicants, you can expect to wait approximately six weeks before you get your approval for benefits. Bear in mind that this timetable only applies if everything runs smoothly. If you supply inaccurate information on your application, such as a transposed number in your birthdate or Social Security number, for example, you can expect a rejection and for the entire process to start all over again. Note that nonretirement Social Security benefits, like disability benefits, may take as long as three to five months for approval.

You Want To Start A Business

Some people think of retirement as a time to relax, but you might see it as an opportunity to do things you couldn’t do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldn’t be generating enough income. Social Security benefits could provide enough income to let you launch your business. And if your business is successful, the income it generates could be more than enough to offset the future reduction in benefits.

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How To Calculate Social Security Benefits

Lets say your FRA is 66. If you start claiming benefits at age 66 and your full monthly benefit is $2,000, then youll get $2,000 per month. If you start claiming benefits at age 62, which is 48 months early, then your benefit will be reduced to 75% of your full monthly benefitalso called your primary insurance amount. In other words, youll get 25% less per month, and your check will be $1,500.

That reduced benefit wont increase once you reach age 66. Rather, youll continue to receive it for the rest of your life. It may go up over time due to cost-of-living adjustments , but only slightly. You can do the math for your own situation using the Social Security Administration Early or Late Retirement Calculator, one of a number of benefit calculators provided by the SSA that can also help you determine your FRA, the SSAs estimate of your life expectancy for benefit calculations, rough estimates of your retirement benefits, individualized projections of your benefits based on your personal work record, and more.

Although the cost-of-living adjustments announced each year are usually only slight increases, Social Security benefits will increase by 5.9% in 2022, marking the largest increase since 1982.

How Much Can I Expect To Get In Social Security Benefits

When Should You Start Taking Care Of Social Security Benefit

The amount of benefits to which you are entitled under any Social Security program is not related to financial need , but is based on the income you have earned through years of working, through jobs and self-employment. Social Security keeps a record of these earnings over your working lifetime and pays benefits based on the average amount earned.

Your Social Security retirement benefits will vary depending on whether you claim them before or after your full retirement age . The longer you wait to start receiving payments, the higher your benefit amount will be. However, it’s not always better to wait until your full retirement age to claim your Social Security benefits. For information on estimating your benefits, see Nolo’s article Social Security: Checking Your Earnings and Benefits.

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Working While Collecting Social Security Retirement

Many people choose or need, to keep working after claiming Social Security retirement benefits. However, if you continue work after claiming early retirement benefits your Social Security benefits may be reduced until you reach your full retirement age.

If you retire at age 62, Social Security will deduct money from your retirement check if you exceed a certain amount of earned income for the calendar year. For example, the income limit in 2018 was $17,040 or $1,420 per month. The income limit increases annually. Until you reach your full retirement age, Security will reduce your benefit by $1 for every $2 you earn over the income limit. Once you reach your full retirement age, you will receive your full Social Security retirement benefit with no limitation on how much income you earn from working.

The worse news is that Social Security does not apply the early retirement work penalty by simply deducting a small amount from each monthly benefit check. Instead, the agency may withhold several months entire checks until the total reduction is paid off. This means your annual budget will have to account for a certain number of months without a benefit check. Complete details on this decidedly complicated process can be found in Social Securitys pamphlet on How Work Affects Your Benefits. You can also use Social Securitys earnings test calculator to see how much your reduction will be and when your checks will be withheld.

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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.

Can I Collect More Than One Type Of Benefit At A Time

Social Security

No. You may qualify for more than one type of Social Security benefit at a time, but you can collect just one. For example, you might be eligible for both retirement and disability, or you might be entitled to benefits based on your own retirement as well as on that of your retired spouse. You can collect whichever one of these benefits is higher, but not both.

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Age To Receive Full Social Security Benefits

Year of birth
67
*People born Jan. 1 of any year refer to previous year.

Alternatively, if you decide to claim but regret your decision, you may get a do-over through what is called a withdrawal of application.

This is only available so long as it has been less than 12 months since your decision to claim was made. However, the catch is that you will need to repay all the benefits you received including spousal or dependent benefits that may have gone to your family in order to reverse your decision. What’s more, you can only do this once in a lifetime.

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.

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How Much Am I Eligible To Receive

Your Social Security retirement benefit will be determined based on a combination of your earnings record and the age at which you claim benefits. For 2021, the average Social Security retirement benefit was $1,555. For 2022, the maximum possible retirement benefit is $4,194. To maximize your benefit, youll have to claim your benefits at age 70 and max out your earnings throughout your career.

How Do My Social Security Benefits Change If I Retire Early Or Late

How Social Security benefits are calculated on a $50,000 salary

As life changes and priorities shift, you may wish to retire before or after your full retirement age. Your Ameriprise advisor can help you determine the best choice for you. Retiring early locks you into lower monthly payments and will decrease your lifetime benefit amount. Retiring later increases your monthly payment and the amount you will receive over your lifetime.

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What Is A Social Security Card

Your Social Security card is an important piece of identification. You’ll need one to get a job, collect Social Security, or receive other government benefits.

When you apply for a Social Security number , the Social Security Administration will assign you a nine-digit number. This is the same number that is printed on the Social Security card that SSA will issue you. If you change your name, you will need to get a corrected card.

Can You Still Work While Receiving Social Security

You can continue to work while you receive Social Security benefits. But there is a limit to how much you can earn and still receive full benefits. The earning limit may be adjusted each year.

If you earn above the limit, Social Security will deduct a certain amount of your benefits each year.

Social Security Benefits, Earning Limits and Penalties

RETIREMENT AGE
SSA deducts $1 from your benefits for every $3 you earn above the limit

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The Bottom Line On When To Claim Your Social Security

Every individuals and couples needs are different when it comes to claiming Social Security. But maybe waiting until age 70 is something we should seriously consider.

Even if youve already filed, you may find that youre eligible for a do-over. You can withdraw your application for up to 12 months after you file, and reapply later. But you only get one do-over. If it makes sense for you to do this, youll have to pay back the Social Security benefits that you received, and in many cases your IRA or 401 may be where you have to get that money.

If you arent sure which Social Security claiming strategy is the best fit for your needs and goals, talk to a financial adviser who is knowledgeable about retirement income planning and, specifically, Social Security benefits. An experienced professional can lay out all your options and help you work out a timeline.

Kim Franke-Folstad contributed to this article.

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