You Already Have Your 35 Highest
Your Social Security benefits are based on your earnings in the 35 years that you had the most compensation. If youre in your peak earning years, you could boost your benefits if you keep working a few more years and delaying your benefits. However, if you arent going to increase your average earnings, such as if youre only working part-time or youve had to retire early, you wont miss out on the chance to boost your benefits with higher earning years. However, youll still receive a smaller benefit for not waiting until full retirement age.
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Spouses Who Dont Qualify For Their Own Social Security
Spouses who didnt work at a paid job or didnt earn enough credits to qualify for Social Security on their own are eligible to receive benefits starting at age 62 based on their spouses record. As with claiming benefits on your own record, your spousal benefit will be reduced if you take it before reaching your FRA. The highest spousal benefit that you can receive is half of the benefit that your spouse is entitled to at their FRA.
While spouses get a lower benefit if they claim before reaching their own FRA, they will not get a larger spousal benefit by waiting to claim after their FRAsay, at age 70. However, a nonworking or lower-earning spouse may get a larger spousal benefit if the working spouse has some late-career, high-earning years that boost their benefits.
Age : Wait And Accumulate Delayed Retirement Credits
At 70, you will get the maximum amount of benefits that you can get from Social Security. It does not make sense to delay your Social Security retirement age past 70 because your benefit amount will not increase. Waiting until 70 to begin your Social Security if you are married and are the higher earner results in a higher survivor benefit for your spouse.
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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 couldnt do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldnt 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.
You Can Undo A Social Security Benefits Claiming Decision
There aren’t many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Let’s say you claimed your benefit, but regretted the decision and wished you had waited. Within the first 12 months of claiming Social Security benefits, you can withdraw the application. You will need to pay back all the benefits you received, including any spousal benefits based on your record. But you can later restart your Social Security benefits at the higher amount youll earn by waiting.
Early claimers have another opportunity for a do-over: They can choose to suspend their Social Security benefit at full retirement age. Say you took your benefit at age 62. Once you turn full retirement age, you can suspend your benefit. You don’t have to pay back what you have received, and your benefit will earn delayed retirement credits of 8% a year. Wait to restart your benefit at age 70, and your monthly payment will get up to a 32% boost — which could erase much of the reduction from claiming early.
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Are Social Security Benefits Taxed After Age 66
Once you reach full retirement age, Social Security benefits will not be reduced no matter how much you earn. However, Social Security benefits are taxable. If your combined income is more than $44,000, as much as 85% of your benefits may be subject to income taxes.
Factors That Affect Social Security Benefits
The math seems to say that everyone should wait until age 70 to reap the best benefits, but this isnt always the case. There are times when it might make sense to start collecting earlier. If, for example, you are in poor health or if the family breadwinner is ill and can no longer work, collecting before your full retirement age could help prevent debt from mounting up.
Your marital status also plays a factor. If youre single and in poor health, you could end up using your savings to pay for medical bills between the ages of 66 and 70. In this case, you might be better off collecting Social Security benefits at a lower rate than holding out for the higher payments youd receive at age 70.
If, however, youre single, in good health and either still working or have plenty of savings, consider waiting until age 70 in order to benefit from the higher payments.
With married couples, it could be best for the spouse who earns the most money to hold off until 70, while the spouse who makes less starts collecting at 62. This approach will ensure that when one of you passes away, the surviving spouse will receive the higher benefitsgenerally the amount their spouse would have received at age 70, even if the spouse died before that age.
For more help with retirement planning, consider contacting a Certified Financial Planner. They can help you ensure youre maximizing your Social Security benefits and answer any questions you have about your other assets.
The Basics Of Social Security
First off, every eligible worker can begin receiving Social Security benefits at age 62, but you’ll get a reduced monthly payment if you don’t wait until you’re at full retirement age. Your monthly payment will depend a few things, including your income throughout your working years, how much you paid into the Social Security system and at what age you claim benefits. Benefits are adjusted yearly based on the cost of living.
Full retirement age depends on the year you were born:
- If you were born between 1943 and 1954, full retirement age is 66
- If you were born between 1955 and 1959, full retirement age is between 66 and 67, depending on your birth year
- If you were born after 1960, full retirement age is 67
The Social Security website provides a calculator to help individuals understand how much their benefit will be reduced if they collect early. For example, if you were born in 1960 and wanted to collect as soon as you hit age 62, you’d receive 70% of your full retirement age payout. But if you waited until age 64 you’d get 80% of the full benefit.
By delaying the receipt of your benefits past full retirement age, you’ll earn even more than the full benefit for every year after full retirement age and before you hit age 70, you’ll collect 8% more each year.
- If you’re full retirement age is 66, you can earn up to 132% of your full benefit by waiting until you’re 70
- If you’re full retirement age is 67, you can earn up to 124% of your full benefit by waiting until you’re 70
Increasing Your Social Security Benefits
Remember, though, that while you may not come close to that maximum $4,194 benefit, you may still be able to make your ultimate checks significantly bigger. There are multiple ways to increase your Social Security benefits. For example, you might be sure to work a full 35 years, because the formula used to determine your benefits averages your earnings from the 35 years in which you earned the most. So if you work only 28 years, there will be seven zeroes factored into the calculations, and working more years will increase your benefits.
If you have worked 35 years and you’re earning more now than ever , you might work a few more years so that each additional high-earning year can kick out your lowest-earning year. That, too, can beef up your benefits.
So don’t get too sad about not getting that maximum Social Security payout. Very few people do. Instead, focus on trying to increase the benefit that you are likely to receive. Learning more about Social Security can help, too.
The $18,984 Social Security bonus most retirees completely overlook
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Taxes On Your Benefits
Your Social Security benefits may be partially taxable if your combined income exceeds certain thresholds. Regardless of how much you make, the first 15% of your benefits are not taxed.
The SSA defines combined income using this formula:
- Your adjusted gross income + nontaxable interest + half of your Social Security benefits = your combined income
If you file your federal tax return as an individual and your combined income is $25,000 to $34,000, then you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, you may have to pay tax on up to 85% of your benefits.
If youre married, filing a joint return, and your combined income is $32,000 to $44,000, then you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, you may have to pay tax on up to 85% of your benefits.
What You Don’t Know Can Hurt You
When you think Social Security, you probably think of retirement benefits.
You may not be aware that there are 13 kinds of different payments you may receive.
The list also includes disability benefits, spousal benefits, divorced spousal benefits, child-in-care spousal benefits, widow/widower benefits, child benefits, disabled child benefits, mother/father benefits, divorced widow/widower benefits, parent benefits, grandchild benefits and death benefits.
That helps explain how 64 million Americans are collecting money from the program.
But each kind of benefit comes with its own set of requirements. The problem is that it’s a use-it-or-lose-it system.
“If you don’t formally request a benefit for which you are eligible, you won’t get it,” Kotlikoff writes.
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Theres An Annual Social Security Cost
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is quite valuable its the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. In 2021, Social Security beneficiaries saw a 1.3% COLA in their monthly Social Security benefits.
The Kiplinger Letter predicted in September that the COLA for 2022 could be 6%, which would be the largest adjustment since 1982. The final COLA for 2022 will be announced on Oct. 13.
Heres what COLAs have been in other recent years:
- 2009: 5.8%
- 2021: 1.3%
How Social Security Benefits Are Calculated
Qualifying for Social Security in the first place requires 40 work credits or approximately 10 years of work. To be eligible to receive the maximum benefit, you need to earn Social Securitys maximum taxable income for 35 years. The cap, which is the amount of earnings subject to Social Security tax, is $147,000 in 2022, up from $142,800 in 2021.
Social Security benefits are calculated by combining your 35 highest-paid years . First, all wages are indexed to account for inflation. Wages from previous years are multiplied by a factor based on the years in which they were earned. This calculation gives an amount comparable to buying power based on the current value of the dollar. Accounting for this valuation change is important because a salary of $14,000, for example, was far more impressive in 1954 than it is today.
Once all wages have been indexed, your average indexed monthly earnings is computed by dividing the sum of all indexed wages by 420 . If you worked fewer than 35 years, a zero is entered for years you did not work. The benefit amount is then calculated based on factors that include the year in which collection begins, whether you have reached FRA, and whether you continue to work while collecting benefits.
Once you reach age 70 there is no reason to wait longer to start collecting as your benefit won’t increase further.
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Work For At Least 35 Years
The Social Security Administration calculates your final benefit amount based on your earnings for the 35 years when you made the most. It then indexes your annual earnings, which is to say it adjusts for inflation, and then takes the average of the 35 indexed amounts. If you have income for less than 35 years, the SSA will give you a zero for those years short of 35.
Thats why its important to have income for at least 35 years. Those zeroes can bring down your average significantly. The government used to send out peoples annual earnings histories, but stopped in 2011 to save money. Its a good idea, though, to check periodically what the government has recorded for you so you can make any needed corrections. You can do this easily by creating an online Social Security account.
Other Tips To Remember
You also need to be your own advocate. Different Social Security employees may give you different answers, according to Kotlikoff. By doing your research, you can advocate for the money for which you are eligible.
It’s also important to apply for those benefits on time so you don’t miss out on any money due to you, he said.
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Learn About Retirement Benefits
We want you to know what Social Security can mean for you and your familys financial future. In this section, you can learn how Social Security works, whos eligible for retirement benefits, and what to consider before applying. Read on to understand how Social Security fits into your retirement plan.
Why The $4194 Max Social Security Benefit Is A Fantasy
Social Security income is likely to be critical to many, if not most, of us in retirement, so it’s natural to want to collect as much as possible from the program. There are multiple ways to increase your benefits, but no matter what you do, you’re not likely to end up with the maximum monthly benefit of $4,194 — and most of us are not likely to come close.
Here’s a look at why that $4,194 maximum Social Security benefit is beyond our grasp — along with some ways to beef up your benefits anyway.
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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
The Value Of Getting Help
For most Americans, the lifetime value of Social Security benefits significantly overshadows other sources of retirement income.
Benefits are adjusted annually for inflation, and they are not affected by the ups and downs of financial markets. Perhaps most important, benefits are guaranteed for life, which makes Social Security an important form of insurance against the risk that youll run out of money late in life. That can be especially important for women, who tend to outlive men but also earn less income, generating lower levels of retirement assets.
For many individuals, the best answer is to delay claiming as long as possible, up to age 70.
Your monthly Social Security benefit amount depends on when you file. You can claim the retirement benefit as early as age 62, or wait as late as age 70, but the amount hinges on your full retirement age the point when you qualify to receive 100 percent of the benefit you have earned. Currently, full retirement age is 66 and a few months for most people. If you claim after full retirement, youll receive credits for delayed filing claim earlier and there will be early-claiming reductions. Claiming at the full age is worth 33 percent more in monthly income than a claim at 62, and a claim at age 70 is worth 76 percent more.
Almost everyone takes it far too early, Dr. Kotlikoff said. About 6 percent of us wait until age 70, but it should be 85 percent.
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