Your Health Should Be A Factor Too
While delaying Social Security could mean getting a lot more money from the program on a monthly basis, it may not necessarily result in you getting more on a lifetime basis. To achieve the latter, you’ll generally need to live a longer life. And if your health isn’t great going into retirement, that may not happen.
As such, before you commit to delaying Social Security, think about whether that’s doable, and also whether it actually makes sense from a financial standpoint. You may decide that claiming benefits at a younger age is actually a better way to go.
Can I Get Social Security Benefits From My Ex
Q. Im 46 years old. Ive been divorced for two years after 23 years of marriage. I have been on SSDI for about three years. My ex-wife is a year younger than me. When I reach full retirement age, if Id be better off claiming spousal benefits but if shes yet to retire, is there anything I can do?
Could use the cash
A. Several items come into play when it comes to determining eligibility for Social Security spousal benefits.
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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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What To Consider Before Filing For Social Security
A larger benefit check sounds great, but there are tradeoffs, and soon-to-retire folks should consider multiple issues before they decide one way or the other on when to file. If you really want to consider all the avenues, then youll have to think about your finances and longevity two issues that people have a hard time grappling with.
But heres the key trade-off: you can file early and take a reduced benefit, expecting that a shorter life span will mean you receive more now, or you could file at full retirement age or later and claim a bigger check, and eventually live long enough to claim more than the first approach.
Social Security is like longevity insurance, says Brent Neiser, a Certified Financial Planner and former chair of the Consumer Advisory Board at the Consumer Financial Protection Bureau. Its a stream of payments that will not stop throughout your life, so delaying your benefits to keep those payments as large as possible forms a helpful base to your retirement plan.
Neiser urges those who have not saved enough for retirement to use whatever means possible to postpone their Social Security benefits until after their full retirement age to help boost their future income.
You can use personal savings to help bridge the gap, but ideally you should plan to work a little longer , Neiser says.
How Retirement Benefits Work
Social Security replaces a percentage of your pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.
When you work, you pay taxes into Social Security. We use the tax money to pay benefits to:
- People who have already retired.
- People who are disabled.
- Survivors of workers who have died.
- Dependents of beneficiaries.
The money you pay in taxes isnt held in a personal account for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.
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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.
Why Claiming Social Security Later On May Not Work Out
Your work status may not impact your Social Security filing if you enter retirement with a large nest egg. But many seniors need to keep working in order to make delaying Social Security feasible.
If that’s the boat you’re in, you can try to hold off on filing past FRA but you can’t assume that plan will work out. That’s because older employees routinely wind up having to leave the labor force earlier than planned, whether due to health issues, layoffs, or other matters outside their control. And so if you’re banking on a larger Social Security benefit to fund your retirement, you may want to put a backup plan into place.
SOCIAL SECURITY: 3 steps to take before you start claiming benefits
Now that backup plan could mean working part-time in retirement if the need to do so arises. It could also mean downsizing to a smaller home or renting out a portion of a larger one you decide to hang on to.
But either way, it’s important to know what steps you’ll take to compensate financially if you’re unable to delay your Social Security claim despite having every intention to do so. That way, you won’t be left to struggle throughout retirement.
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When A Spouse Dies
When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouses benefit. Thats why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, then the surviving, lower-earning spouse will receive a larger Social Security check for life.
When the surviving spouse hasnt reached their FRA, they will be entitled to prorated amounts starting at age 60. Once at their FRA, the surviving spouse is entitled to 100% of the deceased spouses benefit or their own benefit, whichever is higher.
Children Can Also Collect Social Security Benefits
Minor children of Social Security beneficiaries can be eligible for benefits. Children up to age 18 and disabled children older than 18 may be able to receive up to half of a parent’s Social Security benefit. The disability must have occurred before the age of 22. The adult child can continue collecting the benefit even after the parent has died, as long as the disability prevents them from working.
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How Much Can I Earn While On Social Security // 2021 Limits
Many people find themselves in a position needing to work another job while receiving Social Security benefits. Perhaps the retirement benefits they receive are not enough to make ends meet. So, how does working affect the benefits that you will receive? The Social Security Administration has strict rules about working while receiving benefits. They place an earnings limit on the amount that you can earn before your monthly benefit becomes affected. So, what is this earnings limit and how will it affect your benefits? Keep reading to learn all the details of how an extra income might affect your Social Security income.
Can I Qualify For Ssi While Collecting Social Security Retirement Benefits
While you cannot collect Social Security retirement and SSDI at the same time to increase your benefits beyond the full retirement amount, there is a program that may allow you to collect additional income.
SSI, which stands for Supplemental Security Income, is a Social Security program that helps seniors and those with a disability who have an extremely low income or limited assets. To qualify for SSI, you need to meet strict income qualifications and have only a minimum amount of resources. Resources, as the SSA defines the term, can be anything that can be turned into cash, such as:
- Bank accounts, stocks, or U.S. savings bonds
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Taking Social Security: How To Benefit By Waiting
For those who are able to do so, it may make sense to wait even longer, because youll receive a larger monthly benefit even more than your full benefit. Every month past your full retirement that you delay, Social Security will increase your check by about 0.7 percent per month.
If your full retirement age is 66, then heres how much your check would increase:
|Retirement age||New benefit||A $1,000 check becomes|
So if your full retirement age is 66, then if you can wait two more years and claim benefits at age 68, youll increase your monthly check by 16 percent. In this case, if your full benefit were $1,000 a month, your new benefit would become $1,160 per month. And youll still receive cost of living adjustments on top of this amount, typically raising your payout a little each year.
Workers have other ways to grow their Social Security benefits, too, but its important to start early.
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What If Your Earnings Are Falling Short
If you’re earning enough to reach the maximum benefit amount, that’s fantastic. But the average worker will struggle to reach the income limits, and not everyone can afford to work 35 years before claiming.
The good news is that if you’re willing and able to delay benefits past age 62, you can earn closer to the maximum benefit amount.
Say, for example, you have an FRA of 67 years old, and by claiming at that age, you could receive $1,600 per month. If you were to claim early at 62, your benefits would be reduced by 30%, leaving you with $1,120 per month. But if you delay benefits until age 70, you’d receive your full benefit amount plus an extra 24%, or $1,984 per month.
Not everyone will be able to wait until age 70 to file for benefits. But if you’re unable to reach the maximum benefit amount, delaying Social Security is one of the best and easiest ways to boost your benefits.
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.
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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Your May Have To Pay Taxes On Social Security Benefits
Most people know that you pay tax into the Social Security Trust Fund throughout your career, but some retirees don’t realize that you also have to pay tax on your Social Security benefits once you start taking them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.
It doesn’t take a lot of income for your Social Security benefits to be taxed. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their Social Security benefits. Higher earners may have to pay income tax on up to 85% of their benefits.
You may also have to pay state income taxes on your Social Security benefits. See our list of the 12 States That Tax Social Security Benefits.
You Expect Your Investments To Grow Faster Than The Increased Benefit
If youre the next Warren Buffet, its 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 percent per year for each year you wait after full retirement age, however, its hard to outperform that rate of increase in the market. These safe investments do have high returns.
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Change In How You Report Earnings
The Social Security Administration bases its benefit calculations on earnings reported on W-2 forms and on self-employment tax payments. Most individuals are not required to send in an estimate of earnings.
However, the Social Security Administration does request earnings estimates from some recipients: those with substantial self-employment income or those whose reported earnings have varied widely from month to month, including people who work on commission. Toward the end of each year, Social Security sends those people a form asking for an earnings estimate for the following year. The agency uses the information to calculate benefits for the first months of the following year. It will then adjust the amounts, if necessary, after it receives actual W-2 or self-employment tax information in the current year.
Once a beneficiary reaches full retirement age, his or her income will no longer be checked. Because there is no Social Security limit on how much a person can earn after reaching full retirement age, there is nothing to report.
Social Security Benefits If Youre Married
Determining Social Security calculations is a bit more complicated if you are married because you have the option to base benefits on your spouses salary history.
If the lesser earning spouses benefits are based on the higher earning spouses, then the limit of those earnings will be 50 percent of the higher earning spouses benefit amount.
To illustrate this, lets talk about A and B, a married couple.
- A makes significantly more money than B.
- A makes so much more money that As monthly Social Security benefits are going to be more than twice of Bs, based on Bs salary history.
- The good news for B is that they can choose to have their Social Security benefits based on As salary history and can receive as much as 50 percent of As monthly benefit. This is the case even if B didnt hold a job outside the home.
On the other hand, if Bs monthly benefit would have been more than half of As, based on Bs salary history, then B can claim that amount.
In short, B can claim the higher of these two possibilities: Bs own Social Security earnings or half of As.
This all assumes that B doesnt begin claiming benefits until B reaches full retirement age. If B begins claiming earlier, then Bs benefits will be less. In addition, if B is claiming benefits based on As earnings, then B does not benefit by waiting later than full retirement age.
B will not be given more monthly benefits if B waits until age 70, for example, based on As earnings.
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If You Were Born In 1956 Your Full Retirement Age Is 66 And 4 Months
You can start your Social Security retirement benefits as early as age 62, but the benefit amount you receive will be less than your full retirement benefit amount.
The chart below provides examples of the percentage of your full retirement benefit amount you and your spouse would receive from age 62 up to your full retirement age.