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Fact #: Social Security Lifts Millions Of Elderly Americans Out Of Poverty
Without Social Security benefits, about 4 in 10 Americans aged 65 and older would have incomes below the poverty line, all else being equal, according to official estimates based on the 2019 Current Population Survey. Social Security benefits lift more than 15 million elderly Americans out of poverty, these estimates show.
An important study that matches Census estimates to administrative data suggests that the official estimates overstate elderly reliance on Social Security. That study finds that in 2012, 3 in 10 elderly Americans would be poor without Social Security, and that the program lifted more than 10 million elderly Americans out of poverty.
No matter how it is measured, however, its clear that Social Security brings millions of elderly Americans out of poverty and dramatically reduces the elderly poverty rate.
But You Dont Have To Sign Up For Medicare
Just because youre turning 65 this year doesnt mean youre giving up your job. And if you plan to keep working, you may continue to have access to a group health insurance policy through your employer.
If youre happy with that coverage and want to keep it, you can delay your Medicare enrollment and avoid a late signup penalty. But if youre not happy with that group plan, know that youre allowed to work and get health coverage through Medicare at the same time.
Furthermore, if youre keeping your group health coverage through your job, you may want to sign up for Medicare Part A regardless. Though youll pay a premium for Parts B and D, Part A is generally free for enrollees. Signing up could give you access to secondary insurance that may pick up the tab for hospital care your primary insurance doesnt cover.
That said, once you enroll in Medicare, you wont be eligible to contribute to a health savings account. And so if youre currently taking advantage of that option, you may want to forgo that free Part A coverage if youre keeping your group plan through work.
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Applying For Social Security
- Generally, you should apply for Social Security retirement benefits three months before you want your benefits to begin. Even if you dont plan to receive benefits right away, you should still sign up for Medicare three months before you reach age 65.
- If you were born before 1938 and you meet all other requirements, you can receive benefits beginning with the first full month you are age 62. However, if you choose to begin receiving benefits before age 65, your benefits will be reduced to account for the longer period over which you will be paid.
- The full retirement age is 65 for persons born before 1938. The age gradually rises until it reaches 67 for persons born in 1960 or later. Social Security benefits are payable at full retirement age for anyone with enough Social Security credits. As you work and pay taxes, you earn credits that count towards eligibility for future Social Security benefits. You can earn a maximum of four credits each year. Most people need 40 credits to qualify for benefits. People who delay retirement beyond full retirement age get special credit for each month they dont receive a benefit until they reach age 70.
- To find out what your retirement age is, use the Social Security Retirement Age Chart at www.ssa.gov
- You should speak with a Social Security representative in the year before you plan to retire. It may be to your advantage to start receiving your retirement benefits before you actually stop working.
ave questions? Call at 874-4618.
Tax Considerations For 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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When Should You Start Collecting Social Security Benefits
To determine when you should start taking your benefits, its important to understand how much your check is affected by when you claim your benefit. As mentioned before, you can claim your benefit as early as age 62, but reaching full retirement age can secure your full benefit.
So when exactly is full retirement age? That depends on when you were born.
|Year of birth|
|65 + 2 months for each year past 1937|
|66 + 2 months for each year past 1954|
|1960 and later||67|
While the full retirement age used to be 65, changes to the program have increased that age. For example, those born in 1955 now have to wait an extra two months beyond age 66 to claim their full benefit. Someone born in 1959, for example, would have to wait until age 66 and 10 months to get the full benefit. Anyone born in 1960 or later, receives their full benefit at 67.
But some retirees choose to wait even longer. You may wait until as late as age 70 to claim your benefit, but then you must take it. Youll receive a bigger check for doing so.
So what is the upside to delaying your Social Security benefit after age 62? Your check wont get hit by a serious benefit reduction. Heres how much a $1,000 monthly check will become if you claim your benefit as soon as youre eligible at age 62.
|Year of birth||If you file at 62, benefit reduced by:||A $1,000 check becomes|
How Should I Decide When To Take Benefits
Consider the following factors as you decide when to take Social Security.
Your cash needs: If you’re contemplating early retirement and you have sufficient resources , you can be flexible about when to take Social Security benefits.
If you’ll 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 you’ll 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 you’ll beat the average life expectancy, then waiting for a larger monthly check might be a good deal. On the other hand, if you’re in poor health or have reason to believe you won’t beat the average life expectancy, you might decide to take what you can while you can.
A quick note about life expectancy
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An Example Of Taxed Benefits
Lets say you receive the maximum Social Security benefit for a worker retiring at FRA in 2021: $3,148 per month. Your spouse receives half as much, or $1,574 a month. Together, you receive $4,722 a month, or $56,664 per year. Half of that, or $28,332, counts toward your combined income for determining whether you have to pay tax on part of your Social Security benefits. Lets further assume that you dont have any nontaxable interest, wages, or other income except for your traditional individual retirement accounts required minimum distribution of $10,000 for the year.
Your combined income would be $38,332half of your Social Security income, plus your IRA distributionwhich would make up to 50% of your Social Security benefits taxable because youve exceeded the $32,000 threshold. Now, you may be thinking, 50% of $56,664 is $28,332, and Im in the 12% tax bracket, so the tax on my Social Security benefits will be $3,399.84.
Fortunately, the calculation takes other factors into account, and your tax would be a mere $225. You can read all about the taxation of Social Security benefits in the Internal Revenue Service Publication 915.
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 1955 and your full retirement age is 66 and 2 months. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by approximately two . This makes your benefit ~15% 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 it’s important to consider your personal circumstancesit’s not always possible to wait, particularly if you are in poor health or can’t 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.
Effect of late retirement on benefits
1.Represents Full Retirement Age based on DOB Jan. 2, 1955
2.PIA = The primary insurance amount is the basis for benefits that are paid to an individual
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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How Will Working Affect Social Security Benefits
In a recent survey, 68% of current workers stated they plan to work for pay after retiring.1
And that possibility raises an interesting question: how will working affect Social Security benefits?
The answer to that question requires an understanding of three key concepts: full retirement age, the earnings test, and taxable benefits.
Can I Work After Full Retirement Age
Beneficiaries are free to continue working while taking their Social Security benefits, no matter what age they start taking those benefits. However, working and taking Social Security benefits before reaching full retirement age may affect your benefits.
If you start taking Social Security early but keep working, youre subject to whats called an earnings test. For every $2 you earn over $18,960, you will see $1 withheld in Social Security benefits. And in the year you reach full retirement age, this limit changes to $1 in benefits for every $3 you earn above $50,520 up to the month of your birthday.
Once you reach full retirement age, though, you can keep every dollar of your Social Security benefits, no matter how much income you bring in. Your future benefits will also be adjusted to include the money that the earnings test previously factored out.
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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.
Do You Plan On Working After Age 62
Another key factor in your decision is whether or not you plan to continue working after you start collecting Social Security benefits at age 62. That’s because income you earn before full retirement age may reduce your Social Security retirement benefit. Specifically, if you are under full retirement age for the entire year, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit .
Example: You start collecting Social Security benefits at age 62. You continue working, and your job pays $30,000 in 2021. Your annual benefit would be reduced by $5,520 .
Note: If your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.
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What Happens If You Claim After Your Fra
If you wait until your age 70 to start claiming benefits, then youll get an extra 8% per yearor, in total, 132% of your primary insurance amount for the rest of your life. Claiming after you turn 70 doesnt increase your benefits further, so theres no reason to wait longer than that.
The longer you can afford to wait after age 62 , the larger your monthly benefit will be. Nevertheless, delaying benefits doesnt necessarily mean that youll come out ahead overall. Other factors should be considered, including your expected longevity and whether you plan to file for spousal benefits. You should also consider the tax, investment opportunity, and health coverage implications.
Increasing The Eligibility Age For Social Security Pensions
Social Security faces a long-term financing problem. Many young workers believe the problem is so severe they may never receive a Social Security check. The most logical solution to Social Securitys financing problem is to trim promised benefits and increase payroll taxes moderately. A sensible way to reduce future benefits is to increase the early eligibility age and normal retirement age for retirement pensions. This reform is justified by the substantial increase in life spans that has occurred since Social Security was established in the 1930s. An increase in life spans, when the normal retirement age remains unchanged, is equivalent to a sizable increase in lifetime Social Security benefits.
Increasing the retirement age is unpopular with voters. Unfortunately, so are all other reforms that would restore Social Security to solvency, including tax hikes and cuts in the formula for calculating full pensions.
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What Is Full Retirement Age
The size of your monthly Social Security benefit depends on a few factors, including how much you earned over the years, the year you were born, and the age when you start claimingdown to the month.
Youll receive your full monthly benefit if you start claiming when you reach what Social Security considers your full retirement age , sometimes also referred to as normal retirement age. FRA was 65 when Social Security began, but it has been raised to 67 for anyone born in 1960 or later. To find your FRA, see the chart below.
|Finding Your Full Retirement Age|
Consider Creating A Claiming Strategy With Your Spouse
If you and your spouse are both eligible to collect benefits, its smart to come up with a strategy for when youll each claim. For instance, you may decide that the lower-earning spouse should claim early so you both have some extra cash to enjoy now, while the higher-earning spouse delays benefits to earn those fatter checks for the rest of retirement.
Also, although its not the most enjoyable topic to think about, consider both of your life expectancies and how the surviving spouse will make ends meet if the other spouse passes away. When one spouse dies, the surviving partner may be entitled to receive the deceased persons entire benefit amount in survivors benefits.
If, for example, you have reason to believe your spouse will outlive you and youre the higher earner between the two of you, it may be wise for you to delay benefits so that your spouse will receive bigger checks in the event that you pass away first. Keep in mind, though, that the surviving spouse wont receive his or her own benefit amount in addition to survivors benefits only the higher of the two amounts. So if you pass away first but your spouse was already receiving more than you in benefits, your spouse might not be entitled to extra money in survivors benefits.
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