What Else Affects Your Retirement Benefits
Everyones retirement is unique. Beyond deciding when to begin receiving retirement benefits, other factors that can affect your benefits include whether you continue to work, what type of job you had, and if you have a pension from certain jobs.
Continuing To Work
You can choose to keep working beyond your full retirement age. If you do, you can increase your future Social Security benefits. Each extra year you work adds another year of earnings to your Social Security record. Higher lifetime earnings can mean higher benefits when you choose to receive benefits.
Specific Types Of Earnings
While Social Security earnings are calculated the same way for most American workers, there are some types of earnings that have additional rules.
Earning types with special rules include:
Pensions And Other Factors
Pensions and taxes have the potential to impact your retirement benefit. Review the resources below on pensions and other factors you should consider:
- Windfall Elimination Provision : If you have a pension from a job for which you didnt pay Social Security taxes, this policy may lower your retirement benefits.
- Government Pension Offset : This policy affects benefits as a spouse, widow, or widower if you have a pension from a government job for which you didnt pay Social Security taxes.
- Income Taxes And Your Social Security Benefits: You might have to pay federal income taxes on your Social Security benefits in certain situations.
Before You Make Your Decision
There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:
- If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
- That there are other things to consider when making the decision about when to begin receiving your retirement benefits.
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%
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When Am I Eligible
Depending on when you were born, you will be eligible for full retirement benefits as early as age 65 or as late as age 67.
- If you were born before 1938, your full retirement age is 65.
- If you were born from 1938 to 1942, the age ranges from 65 and two months to 65 and 10 months.
- If you were born from 1943 to 1954, its 66.
- If you were born from 1955 to 1959, it ranges from 66 and two months to 66 and 10 months.
- If you were born in 1960 or later, its 67.
You canopt to receive Social Security as early as age 62, but if you do, then your monthly benefits will be permanently reduced. For example, if you take benefits at 62 and your full retirement age is 66, then your benefits will be reduced by 25%.
If you postpone taking benefits past your full retirement age, then you will be rewarded with a higher benefit: 8% for each year up to age 70 , when benefits max out and there is no further incentive to delay signing up.
Your Monthly Social Security Benefits Increase The Longer You Wait To Claim
You can collect Social Security benefits as soon as you turn 62, but taking benefits before your full retirement age means a permanent reduction in your payments of as much as 25% to 30%, depending on your full retirement age.
If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. But you can also get a big bonus by waiting to claim your Social Security benefits at age 70 your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.
Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.
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Timing And Your Health Coverage
Your health insurance coverage can also play a role in deciding when to claim Social Security benefits. Do you have a health savings account to which you would like to keep contributing? If so, note that if youre age 65 or older, then receiving Social Security benefits requires you to sign up for Medicare Part A, and once you sign up for Medicare Part A, youll no longer be allowed to add funds to your HSA.
The SSA also cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D.
In 2022, the average monthly premium for Part D will be $33 per month versus $31.47 in 2021. If you enroll in a Medicare Advantage plan, the average monthly premium will be $19 per month in 2022 versus $21.22 in 2021. However, if you are still receiving health insurance from your or your spouses employer, you might not yet have to enroll in Medicare.
As of Oct. 16, 2021, Social Security offices are only open by appointment, and to get an appointment you need to be in a limited, critical situation. Most people will have to transact their business online, by phone, or through the mail.
How Is Eligibility Determined
Your eligibility for Social Security is based on the credits that you earn during your working years. As of 2021, for every $1,470 you make, you earn one credit, up to a maximum of four per year. In 2022, that rises to every $1,510 you make. If you were born in 1929 or later, then you need 40 creditsessentially, 10 years of full-time workto receive Social Security benefits at retirement.
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Does Working After Full Retirement Age Increase Social Security Benefits
Working after full retirement age could increase your Social Security benefits. Your benefits are based on average wages over your 35 highest-earning years .
Even after you’ve reached full retirement age, and even if you’ve already claimed benefits, the Social Security Administration continues to recalculate your average annual wage to account for new income. If your earnings after FRA are higher than previous years and raise your average wage for your 35 top-earning years, your benefits could rise accordingly.
Social Security Disability Programs
In addition to retirement benefits, the Social Security Administration manages two programs that provide benefits to people who are disabled or blind.
- Social Security Disability Insurance Program
- SSDI supports disabled or blind individuals by providing benefits based on their workers contributions to the Social Security trust fund. Your contributions are based on your earnings or your spouses or parents earnings while in the workforce. Your dependents may also be eligible for SSDI benefits based on your earnings.
- Supplemental Security Income Program
- SSI benefits are paid out as cash assistance to people with limited incomes and resources who are elderly, blind or disabled. These benefits may also include blind or disabled children. SSI payments are a federal benefit funded by the general fund of the United States not the Social Security trust fund. Some states provide additional state supplemental benefits in addition to the federal SSI payments.
In some cases, people may be eligible for both SSI and SSDI at the same time. The Social Security Administration calls these concurrent benefits. This can happen when a disability qualifies you for Social Security Disability Benefits, but you only get a small amount of monthly SSDI benefits. This may qualify you to receive SSI benefits as well.
Comparing SSDI and SSI Programs
|Up to 85%|
Income Taxes for Other Benefit Programs
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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.
The Problem: The Economic Toll From The Pandemic Will Very Likely Affect Social Security Benefits
The initial retirement benefits that Social Security beneficiaries receive in the first year of retirement are determined by a formula that depends, in part, on the growth of average wages in the economy. Due to the economic fallout from the COVID-19 pandemic, the key measure of average wagesthe average wage index is very likely to decline in 2020. As a result, the initial retirement benefits for those who are first eligible to receive benefits in 2022when they reach the age of 62would be significantly less than what was anticipated only months ago, before the pandemic began to exact its economic toll. The effect is very likely to be so significant that workers turning 62 in 2022 would receive initial retirement benefits that are less than those of workers who were born a year earlier and who had essentially the same earnings history. This incongruity is what Social Security experts call a benefit notch. Such a notch would be unfair to the beneficiaries who turn 60 in 2020 and first become eligible to retire in 2022 because benefits are normally expected to grow for each successive cohort of retirees. Moreover, the benefit reduction and notch would have long-lasting consequences, as they not only would affect benefits in the first year of ones retirement but also lower them for every year going forward, as annual benefits are determined by adjusting the initial level for inflation.
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Answer: It Depends On The Amount Of Your Pension And Your Spousal Or Survivor Benefit
Traditionally when a spouse passes away, the survivor is entitled to collect 100 percent of the deceaseds Social Security benefit, if it is larger than their own. However, a spouse is only entitled to receive 50 percent of living spouses retirement benefit. Thats why it is rare for teachers to receive any spousal benefit if their spouse is alive. Their pension is usually larger than 50 percent of their spouses Social Security benefit.
So lets say a teacher wants to collect her deceased husbands benefits. She already receives $3,500 per month from her teaching pension and her husbands Social Security benefit was $1,750 per month. She would not be eligible to receive anything. Why? Her pension is too large. In order for her to receive benefits, her pension would have to be closer to $2,500 per month. And even if that were the case, her survivor Social Security benefit would be under $100 per month.
Every teachers retirement scenario is a little different. Its important to be aware of the rules so you dont have any surprises upon retirement.
What If I Take Benefits Early
If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.
If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.
For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and 2 months you elect to start benefits at age 62, the reduced benefit calculation is based on 50 months. This means that the reduction for the first 36 months is 20% and 5.83% for the remaining 14 months. Overall, your benefits would be permanently reduced by 25.83%.
Effect of early 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
When I Retire Can I Collect My Pension And Social Security
These tips will help you calculate your retirement income.
Retirement from teaching brings with it many complex financial questions. One of the most common is Am I entitled to collect my pension and Social Security? Two scenarios could allow you to receive both.
However, even if you fall into one of these categories, there are some provisions that make sure you dont double-dip into both a government pension and the Social Security system. Lets take a closer look at each scenario.
Full Retirement Age Vs Early Retirement Age
While understanding your full retirement age is a key part of the puzzle, its different from when you may start claiming Social Security benefits. Thats your early retirement age, which is 62 regardless of what year you were born. And while all Americans may start receiving benefits when they turn 62, doing so will decrease the amount of each monthly payment.
Heres a bit of the Social Security Administrations official jargon, which is essential for getting a complete picture of your benefits. Full retirement age is how old you must be to receive your full primary insurance amount , or the base-rate Social Security benefit youre eligible for given your lifetime earnings history.
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How Does This Impact New Retirees
To understand the impact of the changes to full retirement age and to see why it matters that these changes will no longer affect newly eligible beneficiaries it’s helpful to take a look at some examples.
The table below shows exactly when FRA is based on birth year:
Data source: Social Security Administration
So for anyone who turns 62 in 2022 or beyond, full retirement age will be 67. These seniors must wait until then to avoid early filing penalties. By contrast, those who turned 62 last year could get their standard benefit at 66 and 10 months, while those who hit this milestone in 2020 were able to claim at 66 and 8 months and not face penalties.
Now, there’s a chance Congress could make further modifications to Social Security and shift FRA even later for future retirees. But unless that happens, anyone who who first becomes eligible for Social Security retirement benefits this year or in the future will no longer need to delay the start of their Social Security checks longer than their older peers just to get the full benefits they earned over their lifetime of work.
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While You Can Start Collecting Benefits At Age 62 Should You Collect Early Or Delay
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For many elderly people, Social Security benefits make up one of their primary sources of income in retirement. For half of seniors, Social Security comprises about half of their retirement income, according to the Center on Budget and Policy Priorities. Some studies estimate that without Social Security, between 30% and 40% of senior citizens would be considered below the poverty line.
The age at which you decide to collect your Social Security benefits has a big impact on how much you’ll earn from the program over time because the longer you wait, the higher your monthly payout will be.
“Don’t just call Social Security and apply at age 62. Everybody has options. A married couple could receive $1 to $1.5 million in benefits over their lifetime. And single people could maybe half of that,” says Marc Kiner, a CPA at Premier Social Security Consulting. “And do not assume that Social Security will review your options with you.”
Select spoke to Kiner and Jim Blair, the lead consultant at Premier, about some of the factors you should consider when deciding when to apply for Social Security benefits.
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