No : Delay Your Divorce
This won’t work for everyone, but if you have been married for less than a decade and are planning to divorce, and if you are able to delay that divorce, doing so may serve you well. Divorcees may be able to claim benefits based on their ex-spouse’s earnings even if that ex has remarried if they were married for at least 10 years. If your future ex-spouse has a significantly stronger earnings record than you do, you may be able to collect a much bigger monthly benefit check based on his or her earnings than the one based on your own record. There are a few more rules related to this, so look into them if this might apply to you.
Myth #: Your Benefits Are Based Only On Wages You’ve Earned Before Age 65
How your Social Security benefit is calculated can seem mysterious. However, it’s important to know a few essential facts to aid your claiming strategy. You can use the tools on SSA.gov to do the calculations.
- Your benefit is calculated based on your highest 35 years of earnings they don’t have to be consecutive years or before age 65.
- If you work past age 65, those earning years will be included, so long as they are high enough to be part of your highest 35 years.
- Even working part-time after turning 65 may be part of your highest 35 years of earnings.
- To be eligible for Social Security, you must have a minimum of 10 years of covered employment , which equates to 40 credits in the Social Security system.
- If you don’t have 35 years with earnings, zeros will be included in the calculation.
Read Viewpoints on Fidelity.com: Social Security tips for working retirees
How To Calculate Social Security Benefits
If youd just like a ballpark estimate of your benefit, the Social Security Administration offers a quick calculator to give you a sense of your potential benefit. This calculator simply asks for your current annual salary, your birth date and your projected retirement date, although it does allow you to fill in your actual income by year to get a more accurate estimate.
This estimate does not take early or late application for benefits, taxes and Medicare, or COLA increases into account. Youll likely need to download the Social Security Administrations full calculator software or work with a financial advisor to determine your full benefits considering those factors.
Knowing how much you can expect to receive in Social Security gives you an important piece of your retirement income puzzle. With that in hand, you can make the financial plans you need for a secure and fulfilling retirement.
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Earnings Limit On Survivor Benefits
If you file for any Social Security retirement benefit before your full retirement age, there is a limit to how much you can earn. The fact that this also applies to survivor benefits will often catch individuals by surprise.
If you are under full retirement age you are limited to $18,240 in wages or net earnings from self employment. If you exceed that limit, your benefit will be reduced by $1 for every $2 you go over. The one exception is the calendar year you turn full retirement age. For that period, your limit is a much higher $48,600. The amount theyll reduce your benefit by is more generous as well.
Benefits Available To Children & Parents
Eligible spouses arent the only ones that can receive Social Security survivor benefits. Dependent children and parents may also be entitled.
If you want to learn more, here are the best resources on the topic:
Social Security Benefits for Dependent Parents -Article by Mike Piper, the author of Social Security Made Simple.
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Next Steps To Consider
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
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What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit . For example, say you were born in 1951 and your full retirement age is 66. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by two . This makes your benefit 16% higher than the amount you would have received at age 66. .
That higher baseline lasts for the rest of your retirement, and serves as the basis for future increases linked to inflation. While its important to consider your personal circumstancesits not always possible to wait, particularly if you are in poor health or cant afford to delaythe benefits of waiting can be significant.
If you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstancesyour Medicare coverage may be delayed and cost more if you do not sign up at age 65.
To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70, assuming you continue to work and earn about the same amount until age 62, full retirement age, or age 70 before retiring. If you need a copy of your annual statement, you can request one from the Social Security Administration .
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State Taxes On Social Security Benefits
Everything weve discussed above is about your federal income taxes. Depending on where you live, you may also have to pay state income taxes.
There are 13 states that collect taxes on at least some Social Security income. Four of those states follow the same taxation rules as the federal government. So if you live in one of those four states then you will pay the states regular income tax rates on all of your taxable benefits .
The other nine states also follow the federal rules but offer deductions or exemptions based on your age or income. So in those nine states, you likely wont pay tax on the full taxable amount.
The other 37 states do not tax Social Security income.
|State Taxes on Social Security Benefits|
|Taxed According to Federal Rules||Minnesota, North Dakota, Vermont, West Virginia|
|Partially Taxed||Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah|
|No State Tax on Social Security Benefits||Alabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, Wyoming|
The Problem: The Economic Toll From The Pandemic Will Very Likely Affect Social Security Benefits
The initial retirement benefits that Social Security beneficiaries receive in the first year of retirement are determined by a formula that depends, in part, on the growth of average wages in the economy. Due to the economic fallout from the COVID-19 pandemic, the key measure of average wagesthe average wage index is very likely to decline in 2020. As a result, the initial retirement benefits for those who are first eligible to receive benefits in 2022when they reach the age of 62would be significantly less than what was anticipated only months ago, before the pandemic began to exact its economic toll. The effect is very likely to be so significant that workers turning 62 in 2022 would receive initial retirement benefits that are less than those of workers who were born a year earlier and who had essentially the same earnings history. This incongruity is what Social Security experts call a benefit notch. Such a notch would be unfair to the beneficiaries who turn 60 in 2020 and first become eligible to retire in 2022 because benefits are normally expected to grow for each successive cohort of retirees. Moreover, the benefit reduction and notch would have long-lasting consequences, as they not only would affect benefits in the first year of ones retirement but also lower them for every year going forward, as annual benefits are determined by adjusting the initial level for inflation.
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Who Misses Out On Social Security Benefits And Why
Does everyone get Social Security? No. Still, American workers who will not qualify for Social Security retirement benefits are relatively rare. If you are one of them, its important to know, so you can secure other sources of income or determine whether its possible for you to become eligible. What follows are the eight most common categories of workers who lack Social Security eligibility and thus are not entitled to benefits.
How To Correct An Error On Your Social Security Statement
If you have evidence of your covered earnings in the year or years for which you think Social Security has made an error, call Social Security’s helpline at 800-772-1213, Monday through Friday, from 7 a.m. to 7 p.m. This is the line that takes all kinds of Social Security questions, and it is often swamped, so be patient. It is best to call early in the morning or late in the afternoon, late in the week, or late in the month. Have all your documents handy when you speak with a representative.
If you would rather speak with someone in person, call your local Social Security office and make an appointment to see someone there, or drop into the office during regular business hours. If you drop in, be prepared to wait, perhaps as long as an hour or two, before you get to see a representative. Bring with you two copies of your benefits statement and the evidence that supports your claim of higher income. That way, you can leave one copy with the Social Security worker. Write down the name of the person with whom you speak so that you can reach the same person when you follow up.
The process to correct errors is slow. It may take several months to have the changes made in your record. After Social Security confirms that it has corrected your record, request another benefits statement to make sure the correct information made it to your file.
Getting A Social Security Number For A New Baby
The easiest way to get a Social Security number for your child is at the hospital after they are born when you apply for your childs birth certificate. If you wait to apply for a number at a Social Security office, there may be delays while SSA verifies your childs birth certificate.
Your child will need their own Social Security number so you can:
- Claim your child as a dependent on your income tax return
- Open a bank account in their name
- Get medical coverage for them
- Apply for government services for them
Keep your Social Security card in a safe place to protect yourself from identity theft.
No : Check Your Record
You can get a good estimate of how much income you can expect to receive from Social Security by setting up a My Social Security* account with the Social Security Administration . Doing so will let you see the SSA’s record of your earnings, which you should revisit now and then, to make sure they’re correct. If they’re not, you might end up receiving smaller benefit checks than you’ve actually earned. Fixing errors in your record can be an effective way to increase your benefits.
No : Delay Starting To Collect Your Benefits
Another way to increase your Social Security benefits is to delay starting to collect them. You can start as early as age 62 and delay up to age 70. Each of us has a “full” retirement age , and for every year beyond that that you delay, your benefits will grow by about 8%. Delay from age 67 to 70 and you’ll get benefits 24% bigger. The table below shows the effect of starting to collect early or late. For example, if your full retirement age is 67 and you start collecting benefits at 64, your checks will be 80% of what they would have been had you started collecting at 67.
Workers With Too Few Social Security Credits
Can you get Social Security if you never worked? No, because a minimum requirement to collect Social Security retirement benefits is performing enough work. The Social Security Administration defines enough work as earning 40 Social Security credits. More specifically, in 2021, an individual receives one credit for each $1,470 in income, and they can earn a maximum of four credits per year. So, 40 credits are roughly equal to 10 years of work.
If you earn the federal minimum wage of $7.25 an hour, then youll need 202.75 hours of work to receive one . By working just 17 hours a week for 50 weeks at this wage , you can earn the maximum credits per year. That means even those who work part-time so they can attend school or care for a childor those who work part-time because they cannot find full-time workcan amass Social Security credits without too much trouble.
Earned credits never expire, so anyone who has left the workforce with close to 40 credits might consider going back and doing the minimum additional work they need to qualify. You can check the number of credits you have so far by opening a Social Security account on the Social Security website and downloading your Social Security statement.
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Social Security Funds Are Separate
Even if the debt ceiling does not get raised, funds from payroll taxes would still continue to come into the government, Altman said.
Those contributions go toward the program’s trust funds and are used to pay benefits.
Social Security’s combined trust funds for retirement and disability can continue to pay full benefits until 2034, according to the recently released Social Security trustees report for 2021. At that point, 78% of promised benefits will be payable.
“If the debt ceiling doesn’t get raised for a decade, which nobody thinks is going to happen, then there’s not going to be a problem,” Altman said.
What Will You Get From Social Security
I’m a big advocate of crunching retirement numbers to make sure someone is saving enough to retire when and how they want. One of the big variables in that calculation is how much someone will receive from Social Security. We’re all aware that the program is not on rock-solid footing. So how much should people assume they’ll receive when fiddling around with a retirement calculator?
I put that question to several experts, and their responses are below. But first, a word from our sponsor.
Blatant spousal promotion:
As you’ll see from the responses, the experts don’t exactly agree on all the numbers, but they agree on a key fundamental point: Plan on getting less from Social Security than currently projected, but definitely plan on getting something. Here’s what they had to say:
Alicia Munnell, Director of the Center for Retirement Research at Boston College, former member of the President’s Council of Economic Advisers and Assistant Secretary of the Treasury for Economic Policy:
Michael E. Kitces, MSFS, MTAX, CFP®, CLU, ChFC, RHU, REBC, CASL, publisher of The Kitces Report and Director of Research for the Pinnacle Advisory Group:
Eric Tyson, former financial planner and author of Personal Finance for Dummies and Investing for Dummies:
Scott Burns, financial columnist and Chief Investment Strategist at AssetBuilder, Inc.:
This doesn’t mean the weasels won’t weasel. The current discussion of
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Calculating Your Social Security Income Tax
If your Social Security income is taxable, the amount you pay in tax will depend on your total combined retirement income. However, you will never pay taxes on more than 85% of your Social Security income. If you file as an individual with a total income thats less than $25,000, you wont have to pay taxes on your social security benefits in 2021, according to the Social Security Administration.
For the 2021 tax year, single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.
For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits.
If 50% of your benefits are subject to tax, the exact amount you include in your taxable income will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount.
The example above is for someone who is paying taxes on 50% of his or her Social Security benefits. Things get more complicated if youre paying taxes on 85% of your benefits. However, the IRS helps tax payers by offering software and a worksheet to calculate Social Security tax liability.