Wednesday, May 18, 2022

When Can I Retire With Full Social Security Benefits

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Are Social Security Benefits Taxable At Full Retirement Age

ð´Can I Apply For Social Security Retirement Benefits In Advance of Age 62

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.

What Is Your Social Security Full Retirement Age And Why It Matters

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The Social Security defines Full Retirement Age as the age at which you are entitled to receive your full Social Security benefits known as Primary Insurance Amount .

Your FRA is determined by your year of birth as follows:

Year of Birth
1960 and later67

You turn FRA the first of the month you turn the age shown above. For example, if you were born on February 17, 1954, you turn FRA at age 66, as of February 1, 2020. However, if you were born on the first day of the month, you are considered FRA on the first day of the previous month .

If you start receiving your Social Security benefits prior to your FRA, you are subject to the Earnings Test. This means that your benefits will be reduced by $1 for $2 you earn as W-2 gross wages over a Social Security defined limit. This limit is $17,040 in 2018, and indexed annually.

It is also important to note that if you start receiving your benefits prior to your FRA, you will never receive your PIA. Some people think that if they start their benefits early, at 62 for example, then at their FRA age , they will get a bump up in benefits to their PIA, which is not the case. The amount of benefits you start receiving is the amount you will receive each and every month for the rest of your life, or until you get an increase in benefits due to a spousal add-on or survivor benefits.

Age SS Benefits Start
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Do You Have An Immediate Need For The Money

Waiting until normal retirement age results in a benefit some 30% higher than taking benefits at age 62. Waiting until age 70 results in a benefit about another 32% higher than the amount at full retirement age.

If you decide to wait to claim a larger benefit in a few years, do you have other resources to support yourself in the interim? This might include retirement accounts such as a 401 plan or an individual retirement account . What about a pension, taxable investments, or cash? The big question: What is your income in this early part of retirement?

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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 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 .

How Does Full Retirement Age Work

When to Take Social Security Retirement Benefits

Full retirement age is not the same age for everyone. Understanding when you will reach full retirement age depends on the day and year you were born.

Although full retirement age once was 65 for everyone, Congress passed a law in 1983 that gradually increased it to age 67, because people were living longer.

Year you were born
1960 or later67

Not only does FRA depend on the year you were born, but it also depends on the day, because Social Security considers you to have attained an age the day before your birthday. Therefore, if you were born on January 1, you would use the FRA for the year before your year of birth.

For example, someone born on Jan. 1, 1956, would use 1955 as the year to figure their full retirement age, as they would be considered to have attained an age on Dec. 31 of the previous year . According to the Social Security Administration, full retirement age for 1955 as a birth year would be 66 and 2 months, therefore that is their retirement age, even though they were actually born in 1956.

For purposes of the month you are entitled to receive benefits, if you were born on the first of the month, you are considered to attain that age the month before. Someone born on February 1 would be entitled to receive their FRA benefit amount for the month of January.

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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

Working May Affect Your Retirement Benefit

You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may affect the amount of benefit that you receive. Here’s how:

  • If you’re under full retirement age: $1 in benefits will be deducted for every $2 in earnings you have above the annual limit
  • In the year you reach full retirement age: $1 in benefits will be deducted for every $3 you earn over the annual limit until the month you reach full retirement age

Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit. And keep in mind that if some of your benefits are withheld prior to your full retirement age, you’ll generally receive a higher monthly benefit at full retirement age, because after retirement age the SSA recalculates your benefit every year and gives you credit for those withheld earnings

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If You Were Born In 1960 Your Full Retirement Age Is 67

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.

Questions Regarding Social Security

When Can I Retire and Collect Social Security? What’s The Best Age?

If you have questions regarding Social Security, you may want to visit the Social Security Administration’s website at www.socialsecurity.gov to find your answers. If you prefer to speak to someone directly, the SSA is available to speak with callers Monday thru Friday from 7:00 a.m. to 7:00p.m. The toll-free number is 800-772-1213.

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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.

Work With Meld Financial To Develop Your Financial Fingerprint

Social Security planning can be a very complicated endeavor. However, the financial planners at Meld Financial can leverage their vast experience, in conjunction with a team of financial and legal professionals, to help you develop your FINANCIAL FINGERPRINT.

Your FINANCIAL FINGERPRINT is a unique planning process developed here at Meld Financial during several decades of managing our clients wealth. In short, your FINANCIAL FINGERPRINT is a plan that is quick to assemble, easy to understand and simple to modify as your circumstances change.

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What To Do If You Still Have Questions

Dont leave without getting your FREE copy of my latest guide: Top 10 Questions and Answers on the Windfall Elimination Provision. You CAN simplify these rules and get every dime in benefits you deserve! Simply click here

If you have questions, you could leave a comment below, but what may be an even greater help is to join my. Its very active and has some really smart people who love to answer any questions you may have about Social Security. From time to time Ill even drop in to add my thoughts, too.

You should also consider joining the 295,000+ subscribers on my YouTube channel! For visual learners , this is where I break down the complex rules and help you figure out how to use them to your advantage.

And dont leave without getting your FREE copy of my Social Security Cheat Sheet. This is where I took the most important stuff from the 100,000 page website and condensed it down to just ONE PAGE! Get your FREE copy here.

Is Your Full Retirement Age Affected By Where You Live

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Your FRA is not affected by where you live. Most Social Security rules, including those that determine benefit amount and claiming age, are set by federal law. However, some states do tax Social Security benefits, so where you live can affect tax levels on your retirement income. But again, the age at which you claim benefits won’t affect your tax rate — your income is the key factor.

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What Happens If I Work And Get Social Security Retirement Benefits

You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefit. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn.

  • We use the following earnings limits to reduce your benefits: If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit.

For 2021 that limit is $18,960.

  • In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit, but we only count earnings before the month you reach your full retirement age.

If you will reach full retirement age in 2021, the limit on your earnings for the months before full retirement age is $50,520.

Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.

Use our Retirement Age Calculator to find your full retirement age based on your date of birth.

Use our Retirement Earnings Test Calculator to find out how much your benefits will be reduced.

What counts as earnings:

Your benefits may increase when you work:

When youre ready to apply for retirement benefits, use our online retirement application, the quickest, easiest, and most convenient way to apply.

If you need to report a change in your earnings after you begin receiving benefits:

Working After Full Retirement Age Faq

Retirees may work while collecting Social Security benefits, but those younger than their FRA will be subject to the retirement earnings test .

Under this test, if your earnings exceed a certain limit , you will temporarily forfeit some or all of your benefits. Once you reach full retirement age, your benefit is recalculated and you may receive most of that money back.

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Watch Out For Hidden Costs

Youll also want to consider other lifestyle factors, especially Medicare. Americans become eligible for federal health insurance coverage at age 65, well after when you can begin to file for Social Security.

If you stop working at age 62 and lose health insurance, you have to get supplemental insurance to bridge the gap until you turn 65 and Medicare kicks in, Neiser says.

If you work during retirement, you have another incentive to delay collecting Social Security. Earning too much at a job after you begin collecting your benefit can reduce your payout, but only if you have yet to hit full retirement age.

However, when you hit full retirement age, your benefit will increase to account for any benefit that was withheld earlier due to working. Heres how much you can earn and not get hit.

If youre younger than full retirement age for all of 2021, the Social Security Administration will deduct $1 of your monthly check for every $2 you earn above $18,960 per year.

If you reach full retirement age in 2021, the administration deducts $1 of your monthly check for every $3 you earn above $50,520 until the month you reach retirement age.

Youll also owe Social Security and Medicare tax on your earnings, even if youre already receiving benefits.

So those are some potential pitfalls to claiming Social Security early.

Claiming Social Security At Age 70

How Can You Maximize Your Social Security

If you are able to delay claiming your Social Security benefit until you reach age 70, you will earn a significantly higher benefit. After your Full Retirement Age of 66 , your benefit goes up by eight percent each year. Consequently, if your full retirement benefit at age 66 was $1,000 per month, and you delay claiming your benefit, it will be $1,080 per month by age 67 or an additional $960 per year. If you delay until age 70, it will be 124 percent of your expected benefit or $1,240 a month. That comes out to $2,880 more each year.

Delaying past age 70 will not increase your benefit, however.

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What Is The Break Even Point And Why Is It Important

Whenever you wait until age 70 to collect benefits, you’ll be missing out on the years you weren’t receiving payments. If you’re deciding when to collect, you might consider calculating your break even point.

Your break even point tells you at what age you’ll receive more in total Social Security earnings, by collecting at full retirement age or at age 70, than you would have had you collected benefits early.

For many people, the breakeven point is around 12 and ½ years after age 70 or full retirement age, says Blair.

For example, if you collected early at age 62 rather than delay until your full retirement age of 67, you would be earning an additional five years worth of benefits. However, if you collected at 62, your benefit would be reduced by 30%. An individual collecting at age 67 would need to survive around another 12 years after collecting benefits to ‘break even’ compared to getting payouts starting at age 62.

You can calculate your own break even number, but note that the number might not be accurate if you don’t consider factors like the cost of living adjustment or having a spouse, divorced spouse or survivor’s benefit.

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