How The Full Retirement Age Affects Social Security
Full retirement age also affects the Social Security program as a whole. Americans are living longer and the working-age population is shrinking. Some have proposed raising the FRA to 70, based on predictions that the Social Security reserve fund could run out of money by 2034.
Even if the reserve fund is depleted, however, future retirees should expect to get something from Social Security. Social Security income is taxable, which generates revenue. Plus, the Social Security program gets funding from the interest generated by trust funds. So future retirees will likely receive around 75% of every dollar that they currently contribute to the program.
Working After Full Retirement Age
If you choose to work and collect Social Security retirement, your combined income determines if you pay federal income taxes on your Social Security in 2021. Combined income is the total of your nontaxable interest, adjusted gross income and 50 percent of your annual Social Security retirement.
If this total exceeds $25,000 and you are single, or $32,000 and you are married, you pay federal income taxes on part of your Social Security. The Internal Revenue Service taxes 50 percent of Social Security retirement benefits between $25,000 and $34,000 combined income for singles and between $32,000 and $44,000 for married couples filing a joint tax return. The IRS taxes 85 percent of Social Security benefits above $34,000 combined income for singles and above $44,000 for married couples.
Can A Divorced Woman Who Was Married For More Than 10 Years Claim A Spousal Benefit On Her Ex
Not any longer. The government eliminated a strategy that allowed a spouse or a divorced spouse to use a restricted application to file for a spousal benefit while letting her own retirement benefit grow. Now only people born before 1954 can do this.
Instead, when a spouse or divorced spouse files for benefits, the government will give her all the benefits she is eligible for whether it is her retirement benefit or a spousal benefit, said William Reichenstein, a principal of Social Security Solutions, a company that helps individuals maximize their lifetime income.
A divorced spouse can file for a spousal benefit even if the ex-spouse has not yet claimed a benefit as long as both are at least 62 and are divorced for more than two years. A married spouse must wait until her spouse has filed.
But if the ex-spouse dies, the picture changes. The surviving ex-spouse can claim a survivor benefit as early as 60 and allow her retirement benefit to grow until as late as 70. Or she can claim her reduced retirement benefit early and then switch to a higher survivor benefit at full retirement age.
If you were married for 10 years, keep tabs on the ex, Ms. Floyd said. Once he dies, that survivor benefit could be higher than your own.
But Wait What Social Security Benefit Can I Claim And When
Smiling retired couple looking at adorable dog while resting in park
A Reference Guide for Social Security Benefits
Many people are not aware of the Social Security benefits they are entitled to. I understand why they dont its very confusing. Heres a straightforward, easy-to-reference guide to the various benefits available to you that will enable you to make an informed and correct claiming strategy.
Lets start with a holistic approach:
Lets talk about your own retirement benefit:
- You are always paid your retirement benefit first if you have one.
- The earliest you can apply for benefits is age 62.
- Its the only benefit that accrues delayed retirement credits.
- The Annual Earnings Limitation applies before full retirement age.
- The Windfall Elimination Provision may apply if you have another government pension.
- You can voluntarily suspend your own retirement benefit at our full retirement age.
- There is no reason to wait past 70 to file for benefits.
Spousal Benefits only apply to your current spouse:
The MAXIMUM spousal benefit at your own full retirement age is equal to 50% of your spouses Primary Insurance Amount if they are collecting their own retirement benefit. If your own retirement benefit is greater than 50% of your spouses Primary Insurance amount, you will not receive a spousal benefit.
Spousal Benefits in cases of divorce:
The MAXIMUM ex-spousal benefit is the same as the current spousal benefit described earlier.
Understanding The Full Retirement Age
Social Security uses full retirement age to calculate 100 percent of your benefit amount. For individuals born in 1942 or earlier, full retirement age is 65. Individuals born from 1943 to 1954 reach full retirement age at 66.
Persons born after 1960 reach full retirement age at 67, and a birth date between 1955 and 1959 increases the full retirement age two months for every year. An individual born in 1955 reaches full retirement age at 66 years and 2 months; 1956 is 66 years and 4 months.
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Social Security Retirement Age : If You Are A Widow/widower
If you are a widow or widower, you can receive Social Security retirement benefits as early as 60. If you;have not reached your full retirement age, and you are still working and earn more than the earnings limit, your;benefits will be reduced. Once you reach full retirement age, no more reductions will apply, regardless of how much you work and earn. Those working will want to consider waiting until their full retirement age to begin widow/widower benefits.
One option available to widows/widowers is to file a restricted application, which means you can begin one type of benefit, such as a survivor benefit; then when you reach 70, you can switch over to your retirement benefit amount if it would be larger.
Gaining Back The Reduction In Benefits From Working
The amounts of early retirement benefits you lose as a setoff against your earnings are not necessarily gone forever. When you reach full retirement age, Social Security will recalculate upward the amount of your benefits to take into account the amounts you lost because of the earned income rule. The lost amounts will be made up only partially, however, a little bit each year. It will take up to 15 years to completely recoup your lost benefits. And remember, none of this readjustment will change the permanent percentage reduction in your benefits that was calculated when you claimed early retirement benefits .
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How Should I Decide When To Take Benefits
Consider the following factors as you decide when to take Social Security.
Your cash needs: If youre contemplating early retirement and you have sufficient resources , you can be flexible about when to take Social Security benefits.;;
If youll need your Social Security benefits to make ends meet, you may have fewer options. If possible, you may want to consider postponing retirement or work part-time until you reach your full retirement ageor even longer so that you can maximize your benefits.
Your life expectancy and break-even age: Taking Social Security early reduces your benefits, but youll also receive monthly checks for a longer period of time. On the other hand, taking Social Security later results in fewer checks during your lifetime, but the credit for waiting means each check will be larger.
At what age will you break even and begin to come out ahead if you delay Social Security? The break-even age depends on the amount of your benefits and the assumptions you use to account for taxes and the opportunity cost of waiting . The SSA has several handy calculators you can use to estimate your own benefits.
If you think youll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if youre in poor health or have reason to believe you wont beat the average life expectancy, you might decide to take what you can while you can.
A quick note about life expectancy;
When Can I Get Social Security
The earliest you can start receiving Social Security benefits is age 62. But the earlier you elect to receive your benefits, the smaller your monthly checks will be. To receive full benefits, you will have to avoid collecting Social Security until you reach your full retirement age. For people born in 1960 or later, that age is 67.
If you decide to retire early, you have the option of delaying your Social Security benefits. This strategy may work particularly well for married couples.
Claiming Social Security Early Reduces Benefits
You can claim your Social Security retirement benefits as early as 62 but you will receive a smaller amount if you do that. How much your benefits will be reduced depends on your age when you claim Social Security. For example, lets say you are eligible for 100% of your benefits at age 67, which is the full retirement age for anyone born in or after 1960:;
- If you claim Social Security early at age 62, your benefit will be reduced by 30%
- If you claim early at age 63, your benefit will be reduced by 25%
- If you claim early at age 64, your benefit will be reduced by 20%
- If you claim early at age 65, your benefit will be reduced by 13.3%
- If you claim early at age 66, your benefit will be reduced by 6.7%
Under this example, if you were eligible for $1,000 a month at your full retirement age of 67 then the benefit would be reduced to $700 a month if you claimed at 62; $750 if you claimed at 63; and so on, according to the Social Security Administration. The reduction is calculated each month, not on a yearly basis, so every month you wait after age 62 will mean a slightly bigger Social Security check.;
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Changes On The Horizon
Right now, there are no concrete plans to raise the retirement age, or otherwise change Social Security.
But efforts to strengthen the system could be coming under President-elect Joe Biden.
Biden’s campaign platform calls for Social Security reform, but does not call for raising the retirement age. Advocates for preserving Social Security benefits are opposed to such a change because it amounts to a benefit cut.
Yet as people live longer that could force a change, according to Fichtner.
“If longevity increases, if we don’t increase the retirement age, then by default we are giving enhanced benefits or greater benefits than what’s intended,” Fichtner said.
For example, if benefits were adjusted according to today’s life spans, the retirement age would be 70, he said.
“If we continue to have increases in longevity, the Social Security retirement age is probably going to have to increase to account for that,” Fichtner said.
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Limits On Earned Income If Claiming Early Benefits
Until you reach full retirement age, Social Security will subtract money from your retirement check if you exceed a certain amount of earned income for the year. For the year 2021, this limit on earned income is $18,960 . The amount goes up each year. If you are collecting Social Security retirement benefits before full retirement age, your benefits are reduced by $1 for every $2 you earn over the limit. Once you reach full retirement age, there is no limit on the amount of money you may earn and still receive your full Social Security retirement benefit.
Henry is considering claiming early retirement benefits this year, at age 64. Social Security calculates that if he does so, he’ll receive $866 a month . But Henry also intends to continue working part-time, with an income that will be about $5,000 over the yearly limit on earned income. If he does claim the early benefits and makes that part-time income each month, Henry would lose one dollar out of two from the $5,000 he earns over the limit, which means $2,500 for the year. So, by claiming early retirement and continuing to earn over the limit, Henry incurs a double penalty: His retirement benefits are permanently reduced by 13%, and he loses an additional amount every month to the extent he earns over the income limit.
Social Security does not reduce each monthly check by a small amount, unfortunately. Instead, the agency may withhold several months’ entire checks until the reduction is paid off.
No One Else Is Relying On Your Benefits
In the event of your death, a surviving spouse, minor or disabled child can receive money from the Social Security Administration based on the amount of your benefits. For example, a surviving spouse can receive between 71.5% and 100% of your benefit amount, depending on the surviving spouses age. A disabled child can receive 75% of your benefits each month even after youre gone.
If no one else can qualify for benefits based on your record, you might want to retire early because no one is depending on that money. If everything else falls into place and you meet the minimum Social Security retirement age, consider collecting your benefits early and enjoying life.
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Claiming Social Security After Your Full Retirement Age Increases Benefits
You can also wait as late as age 70 to start collecting Social Security benefits. Doing so boosts your retirement benefits. Theres no incentive to wait after age 70 to claim Social Security.;
Heres how your benefit will increase if you wait to claim Social Security:
- If you delay claiming until age 68, your benefit will increase by 8%
- If you delay claiming until age 69, your benefit will increase by 16%
- If you delay claiming Social Security until age 70, your benefit will increase by 24%
Using this example, if you were eligible for a Social Security retirement benefit of $1,000 per month at your full retirement age of 67, the benefit would increase to $1,080 if you delay claiming until age 68; $1,160 if you delay to age 69; and $1,240 if you delay to age 70.;
Once again, the delayed retirement credits accrue monthly, not annually, so every month you wait beyond age 67 will net you a slightly bigger monthly check from Social Security.
Waiting To Receive Social Security Benefits
If you delay receiving Social Security benefits until after full retirement age, you will get benefit credits that increase the amount you receive once you do start. But that increase stops once you’ve reached age 70.
For example, if your full retirement age is 67, you would receive an 8% increase each year that you postpone receiving your benefits until you reach age 70. However, if you delay receiving your benefits, you must still apply for Medicare before age 65. You can start the process, called open enrollment, three months before the month of your 65th birthday. Your open enrollment lasts for three months after the month you turn 65.
If you miss your open enrollment, or you don’t enroll in Medicare Part B because you have coverage through work or a spouse, you’ll have opportunities to enroll later.
If you don’t sign up for Medicare Part B during open enrollment and you don’t have other coverage, you could be charged a penalty of 10% for each year you delayed enrollment once you do enroll.
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Full Retirement Age: Figuring Out Yours
For the first several decades of the Social Security program, everyone had the same full retirement age: 65. But Congress introduced amendments in 1983 that would allow the normal retirement age to increase over time. Congressional leaders felt that a gradual adjustment of the full retirement age was necessary to ensure that there was enough money to keep Social Security from facing insolvency.
The result is that not everyone has the same full retirement age. The age at which you gain access to full Social Security benefits depends on the year you were born. If you were born between 1943 and 1954, your full retirement age is 66.; If your birth year is 1960 or after, your normal retirement age is 67. Anyone born between 1955 and 1959 has a normal retirement age between 66 and 67 that is, 66 plus a certain number of months. For instance, if you were born in 1958, your full retirement age is 66 and eight months.
The day you were born could also affect your normal retirement age. If you were born on January 1, youll need to use the full retirement age for the folks who were born a year before you. If you were born on the first day of any month, your FRA will be the same as someone born the previous month. For example, if you reach your FRA on March 1, youll receive full benefits for the month of February, too.
Heres a complete breakdown of the full retirement age by birth year.
|Full Retirement Age|
|67 years old|