How Do Benefits Work And How Can I Qualify
While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:
Those who are currently retired
To people with disabilities
To the surviving spouses and children of workers who have died
Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.
There are four main types of benefits that the SSA offers:
Learn about earning limits if you plan to work while receiving Social Security benefits
Report The Death Of A Social Security Or Medicare Beneficiary
You must report the death of a family member receiving Social Security or Medicare benefits. The Social Security Administration processes death reports for both. Find out how you can report a death and how to cancel benefit payments. In addition to canceling SSA and Medicare benefits, find out what other benefits and accounts you should cancel.
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.
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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 really be a mere $225. You can read all about the taxation of Social Security benefits in Internal Revenue Service Publication 915.
If You Were Born Between 1943 And 1954 Your Full Retirement Age Is 66
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.
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When Should I Start Collecting Social Security
You can start collecting Social Security payments once you hit the age of 62. However, is it wise to do so?
That depends on your situation. For most people, though, it makes more financial sense to wait at least until the age of 66. That is the age when people born from 1943 to 1954 first qualify to receive full Social Security benefits. That full retirement age increases for people born after 1954, hitting a maximum of 67 for anyone born after 1960 and later.
Wondering when you should begin collecting Social Security? You will have to take a long look at your health and your finances to make the right decision.
It can be tempting to retire early and begin collecting Social Security benefits before you hit the age of 66. The thought goes like this: I have been paying money into Social Security my whole life. Why shouldn’t I start collecting it as soon as possible?
You can start collecting Social Security once you hit the age of 62. However, there’s a financial penalty that comes with collecting at such an early age: You will receive less money each month than you would have had you waited until you turned 66.
The Social Security Administration website provides a Social Security benefits calculator that tells you how much your monthly benefits will fall if you begin collecting payments before full retirement age.
Suddenly, that $250 a month seems like a bigger deal, right?
The benefits of retiring later
That is a difference of $320 a month or $3,840 a year.
Waiting To Receive Social Security Benefits
If you delay receiving Social Security benefits until after full retirement age, you will get benefit credits that increase the amount you receive once you do start. But that increase stops once you’ve reached age 70.
For example, if your full retirement age is 67, you would receive an 8% increase each year that you postpone receiving your benefits until you reach age 70. However, if you delay receiving your benefits, you must still apply for Medicare before age 65. You can start the process, called open enrollment, three months before the month of your 65th birthday. Your open enrollment lasts for three months after the month you turn 65.
If you miss your open enrollment, or you don’t enroll in Medicare Part B because you have coverage through work or a spouse, you’ll have opportunities to enroll later.
If you don’t sign up for Medicare Part B during open enrollment and you don’t have other coverage, you could be charged a penalty of 10% for each year you delayed enrollment once you do enroll.
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It Depends On The Type Of Benefit And Other Factors
Most people think of Social Security benefits as a monthly payment that you start getting in retirement and receive for the rest of your life. In fact, Social Security is an umbrella term for several federal benefits programs. One of the largest government programs anywhere in the world, Social Security is expected to have paid out more than $1 trillion to about 65 million Americans in 2020.
There are three key groups of people who receive Social Security benefits: retired workers, survivors of retirees, and people with disabilities and their families. How long does Social Security last? It depends on the type of benefit.
Make Payments To The Federal Government
Learn how to use Pay.gov to make secure, electronic payments to government agencies from your checking or savings account. You can use the online service for VA medical care copayments, U.S. district court tickets, U.S. Coast Guard merchant mariner user fee payments, and more.
If you need help, contact Pay.gov customer service.
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What Other Income Sources Will You Have During Retirement
The availability of income from other sources, such as savings, pensions, mutual funds, or annuities, can affect someones claiming strategy, too. People with sufficient income from other sources to cover retirement expenses immediately might prefer to delay claiming Social Security until later in retirement.
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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Whats Full Retirement Age
Full retirement age is when youre eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: Under current law, if you were born in 1951 or later, your full retirement age is now some point after age 65all the way up to age 67 for those born after 1959. If you were born before 1951, youve already reached age 66 and full retirement age.
Retirement ages for full Social Security benefits
If you were born in
Your full retirement age is
1950 or earlier
Can A Person Who Is Due A Public Pension Also Collect Social Security Benefits
Two rules could reduce benefits for people who are also entitled to a public pension on earnings not covered by Social Security.
One rule is the windfall elimination provision , which applies to people who worked at jobs covered by Social Security but also worked as noncovered government employees and are due a pension.
When it is time to claim benefits, many people are unprepared for these cuts, Mr. Blair said. Possible W.E.P.-related reductions are not reflected in the workers Social Security statement, which shows the history of annual earnings and estimates of future benefits only for jobs covered by Social Security.
You can have someone who looks at the Social Security statement and it shows a benefit of $1,000 at full retirement age, Mr. Blair said. But the individual a teacher who is due a public pension, for example may be surprised later if the benefit is much lower, he said.
In addition to W.E.P. reductions, a government pensioner who applies for a Social Security spousal or survivor benefit can face reductions. The government pension offset reduces those benefits by two-thirds of the government pension.
Pensioners are exempt from the W.E.P. offset if they paid into Social Security for 30 years or more in jobs with substantial earnings .
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Can You Collect Social Security At 62 And Still Work
Yes, you can begin collecting Social Security as early as age 62, and you can still work while you collect these benefits. However, there is a limit to the amount that you can make while receiving benefits. Most people working full time will earn more than the limit of $18,960, and their benefits will be reduced by $1 for every $2 that they earn over the limit. If working part-time or full-time and earning less than this limit, then there will be no reduction in benefits.
How Does Working After Retirement Affect Your Benefits
Working after retirement is becoming more and more common. The average recipient of Social Security retirement benefits is only receiving $1,543 per month. One can quickly see why it often becomes necessary to continue working even when receiving benefits. Some people might continue to work their normal job when they choose to start receiving benefits. Others might decide to return to work at a part-time job. So, how does working affect the benefits that you will receive?
The main thing to understand here is that your benefits can be affected by earning additional income, particularly if you have not reached full retirement age. Those who choose to start their benefits early might not receive their full benefits if they are still working. In 2021, the Social Security earnings limit is $18,960 to still receive full benefits. This means that if you earn more than this amount from another source like a part-time job, then your benefits will be reduced. Your benefits will be reduced by $1 for every $2 that you earn above the limit.
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, then 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, then you may have to pay tax on up to 85% of your benefits.
What Is My Retirement Age
Americans can choose to start collecting Social Security benefits between the ages of 62 and 70. Many people want to start as soon as possible, which is understandable. After all, youve spent your career paying into Social Security, and it makes sense to take advantage of those benefits. However, just because you can start collecting at age 62 doesnt always mean its the best choice. This is because, for some people, 62 is not actually considered your full retirement age. If you were born after 1960, your full retirement age is 67. If you were born in the 1950s, your retirement age is around 66. These numbers have been adjusted over time in an effort to compensate for an increase in average life expectancy.
You need to wait until you reach your full retirement age to apply for social security if you want to receive your full benefits. However, if you wait past your full retirement age, youll generally receive a Delayed Retirement Credit that can slightly increase the amount of benefits you receive. The longer you wait after your full retirement ageup until you reach age 70the higher your benefit will likely become. You can find more detailed information on Delayed Retirement Credits on the Social Security Administrations website.
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Can You Still Work While Receiving Social Security
You can continue to work while you receive Social Security benefits. But there is a limit to how much you can earn and still receive full benefits. The earning limit may be adjusted each year.
If you earn above the limit, Social Security will deduct a certain amount of your benefits each year.
Social Security Benefits, Earning Limits and Penalties
|SSA deducts $1 from your benefits for every $3 you earn above the limit|
Are You Still Working
Americans may file for Social Security benefits when they turn 62, even if they are still collecting a paycheck. However, starting Social Security benefits at age 62 is four to five years before full retirement age , which is when you can expect to receive a full, unreduced benefit.
If you begin taking Social Security benefits early, each there is month between your start date and your full retirement age permanently reduces your monthly payment by about half a percent.
In addition to seeing a permanent reduction in monthly benefit, if you are still working while collecting early benefits, you may see some of your Social Security payments withheld because of something called the earnings test. If you havent reached full retirement age, you will see $1 of your Social Security benefits withheld for every $2 over $18,960 that you earn. This test changes to a withholding of $1 in benefits for every $3 you earn above $50,520 up to the month of your birthday during the year you reach full retirement age.
Take a 63-year-old beneficiary who is earning $35,000 per year while also taking Social Security benefits. Their annual income is $16,040 above the earnings test limit, which means $8,020 will be withheld from their Social Security benefits.
Once you reach the Social Security full retirement age, you can work as much as youd like without imperiling your monthly benefit, though youll still be on the hook for income taxes.
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Receiving Social Security Benefits Early
If you start receiving Social Security at age 62, your monthly benefits will be reduced accordingly by as much as 30%. Benefits increase with each year as you approach full retirement age, at which point you will receive the full amount.
If you start Social Security after age 62 but before you reach your full retirement age, your benefits will still be reduced, but not as much. Social Security reduces your benefit by 5/9 of 1% for each month before your full retirement age for up to 36 months. If you retire more than 36 months before your full retirement age, you lose an additional 5/12 of 1% per month. The formula can be complicated, so the best way to know exactly what you’ll receive based on when you plan to retire is to visit the Social Security website and log into your account or call Social Security at 1-800-772-1213.
When Is The Best Time To File For Social Security Benefits
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Deciding the age at which you will begin to collect Social Security is likely to be a big factor in your retirement planning. Many retirees look forward to the day that they can apply for the benefits theyve spent their whole careers paying for. However, if you have a substantial nest egg and dont need the extra funds immediately, it may be in your best interest to wait a few years before claiming your benefits.