Thursday, June 16, 2022

When Do You File For Social Security

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How Do Ssdi And Social Security Retirement Work Together

SSDI pays out your full retirement benefits until you qualify to draw them under the traditional Social Security retirement scheme. Once you reach full retirement age based on the year you were born, the SSA will automatically start your retirement benefits and cease your SSDI payments.

The SSA allows you to file for retirement benefits as early as age 62. You can also wait and receive your full benefit amount when you reach full retirement age. Depending on what year you were born, this may vary from 65 to 67 years old.

If You Earn Enough Money For Your Benefits To Be Taxable You Could End Up Paying The Highest Income Taxes In The Country

By Stephen Fishman, J.D.

Social Security benefits are tax free unless you earn too much income during the year. To know whether you might be subject to such taxes you have to figure your “combined income.” This is actually quite easy: Simply add one-half of the total Social Security you received during the year to all your other income, including any tax-exempt interest .

You’ll have to pay tax on part of your benefits if your combined income exceeds these thresholds:

  • $32,000 if you’re married and file a joint tax return , or
  • $25,000 if you’re single.

If a married couple files their taxes separately, the threshold is reduced to zerothey always have to pay taxes on their benefits. The only exception is if they did not live together at any time during the year in this event the $25,000 threshold applies.

This applies to all types of Social Security benefits: disability, retirement, dependents, and survivors benefits.

How much of your Social Security benefits will be taxed depends on just how high your combined income is.

Individual filers. If you file a federal tax return as an individual and your combined income is between $25,000 and $34,000, you have to pay income tax on up to 50% of your Social Security benefits. If your income is above $34,000, up to 85% of your Social Security benefits is subject to income tax.

Once you start receiving Social Security benefits, to keep your income below the applicable threshold, or at least as low as possible, you should:

Youre Only Working Part Time

If you claim Social Security prior to your full retirement age while still holding down a part-time job, you might have your benefits reduced if your work income exceeds the annual limit. For 2021, if you are under full retirement age, your benefits go down by $1 for every $2 your income exceeds $18,960. If you reach full retirement age in 2021, your benefits go down by $1 for every $3 your income exceeds $50,520 prior to reaching full retirement age. If youre working part-time to help make ends meet, taking Social Security at 62 might make sense.

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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.

You Cant Work Anymore

How To Apply For Social Security Benefits: What You Need To Know

Even the best retirement financial plans and projections can go awry. For example, you might have planned on working until youre 70 so you could maximize your retirement benefits. If you get laid off at 62, however, and have difficulty finding another job, you might need to start taking your benefits just to get by.

Additionally, continuing to work in your industry simply might not be possible or healthy for you later in life. If your job requires manual labor, you might decide the risk of injury or other damage to your health isnt worth continuing to work. In this case, the healthier lifestyle youll get by retiring early could outweigh the smaller monthly Social Security benefit.

See: 17 Tips To Live Comfortably Off Just a Social Security Check

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Age 70 Is When Your Potential Retirement Benefits Reach Their Maximum

Though 62 remains the most popular age to start collecting Social Security, there are plenty of filers who opt to take their benefits later. Some choose to wait until full retirement age in order to avoid a reduction in payments. Others might opt to wait even longer and accrue delayed retirement credits in the process. But there comes a point where it no longer pays to hold off on filing for benefits — specifically, age 70. Though you’re not compelled to sign up for Social Security at that time, delaying will only cause you to lose money — money you’re entitled to.

Youre Planning Your End

Your Social Security benefits stop paying at your death, so if you die prior to collecting benefits, youll have missed out on benefits entirely. You need to figure out how to maximize your Social Security income, instead. For example, say youre planning to wait until age 70 so you can claim the larger monthly benefit. If you die right before your 70th birthday, you wont receive any benefits. Its very difficult to predict how long youll live, especially if youre in good health now. However, if you are suffering from a terminal or serious illness, the increased monthly benefit for delaying Social Security might not be worth it.

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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.

Beware The Social Security Earnings Test

Bringing in too much money in earned income can cost you if you continue to work after claiming Social Security benefits early. With what is commonly known as the Social Security earnings test for annual income, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2021 is $18,960. Once you are past full retirement age, the earnings test no longer applies, and you can make as much money as you want with no impact on benefits.

Any Social Security benefits forfeited to the earnings test are not lost forever. At your full retirement age, the Social Security Administration will recalculate your benefits to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full years worth of benefits to the earnings test, at a full retirement age of 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.

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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

When Should I Apply For Social Security Benefits

The Social Security Administration allows you to apply for benefits as early as four months before youre eligible to be approved. For example, if you turn 62 in June which is the earliest age you can begin receiving benefits you can file your application four months in advance, or in February. Seeing as your application could take six weeks or more to process, its in your best interest to file for your benefits the full four months before youre eligible to receive them.

The question of when to apply for Social Security benefits runs much deeper than following a simple timeline, however. If you claim your benefits early, at age 62, youre locking in a permanent 30% reduction in your monthly benefits. If you wait instead until age 70, your benefits will actually increase by 8% annually over your full retirement age benefit reached at age 67. This decision has lifelong ramifications for your retirement income, so its a good idea to speak with a tax advisor and/or financial consultant before you make your final choice.

Social Security: What Matters Most to You?

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Reasons You Should Claim Social Security Early

Learn why Social Security at 62 might not be a bad idea. Social Security 101

Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can have a big impact on your planning. The earliest you can collect is age 62, but youll get more money if you delay your benefits past your initial Social Security eligibility. If you wait until after your full retirement age to start collecting Social Security you can earn delayed retirement credits, which will increase your benefits even more.

Read: When Social Security Runs Out: What the Program Will Look Like in 2035

You might think that waiting for bigger benefits is better, but thats not always the case. There is no definitive answer to when you should collect Social Security benefits, and taking them as soon as you hit the early retirement age of 62 might be the best financial move.

No One Else Is Relying On Your Benefits

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In the event of your death, a surviving spouse, minor or disabled child can receive money from the Social Security Administration based on the amount of your benefits. For example, a surviving spouse can receive between 71.5% and 100% of your benefit amount, depending on the surviving spouses age. A disabled child can receive 75% of your benefits each month even after youre gone.

If no one else can qualify for benefits based on your record, you might want to retire early because no one is depending on that money. If everything else falls into place and you meet the minimum Social Security retirement age, consider collecting your benefits early and enjoying life.

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Lost Or Stolen Federal Payments

Report your lost, missing, or stolen federal check to the agency that issued the payment. It’s usually one of these paying agencies. If your documentation indicates it’s a different agency, and you need its contact information, look in the A-Z Index of U.S. Government Departments and Agencies.

To get an update on your claim, contact the Treasury Department Philadelphia Financial Center at 1-855-868-0151, option 1.

What Is The Difference Between Ssi And Ssdi

Both SSI and SSDI disability programs offer benefits for disabled individuals. However, the financial eligibility requirements are different.

The main difference is SSI eligibility depends on your age, disability, and limited income or resources. Conversely, SSDI eligibility depends on your disability and work credits.

SSI vs SSDI: Whats the Difference and Why It Matters

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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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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 ageNew benefit A $1,000 check becomes
$1,320

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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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 .

The Bleak Future Of Social Security

Aggravated by the COVID pandemic, the Social Security trust fund most Americans rely on for their retirement will run out of money in 12 years, one year sooner than expected, according to the annual Social Security 2021 Trustees Report published on August 31, 2021. The pandemic also threatens to shrink retirement payments and increase health-care costs for older Americans, according to the Trustees.

The Treasury Department oversees two Social Security funds: Old-Age and Survivors Insurance and Disability Insurance Trust Funds. These funds are intended to provide a source of income to former workers who have retired at the end of their careers or to those who cannot work due to a disability, respectively.

Social Security officials said that the Old-Age and Survivors trust fund is now able to pay scheduled benefits until 2033, one year earlier than reported last year. The Disability Insurance fund is estimated to be adequately funded through 2057, eight years earlier than in the report published in 2020.

In a press briefing, senior Biden administration officials said that a COVID-related spike in deaths among retirement-age Americans in 2020 helped keep the programs costs lower than projected. They also noted, however, that the long-term effects of the COVID pandemic on the Social Security trust funds is harder to project as costs and revenues return to their extended forecasts.

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