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:
It May Not Be Ideal But It Is Possible With The Right Strategy
For many people, the goal is to be able to treat Social Security as a supplement to retirement savings and income. The average monthly retirement benefit is $1,485.63, whichdepending on where you live and your expensesmay or may not be enough to live comfortably. So if you’re approaching retirement having saved less than you’d like, and hope to live on Social Security alone, you’ll need a game plan to make it work.
What’s In Store For Social Security
At this point, we don’t know what lawmakers will end up doing to fix Social Security’s financial woes. But given the number of seniors who stand to plunge below the poverty line following a reduction in benefits, we should brace for some sort of change to the current system. Whether it’s a painful one for workers to absorb is yet to be determined.
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What Is The Future Of Social Security
If youre skeptical about the future of Social Security or wary of potential changes such as means testingwhich could reduce or eliminate benefits for the wealthy, or an increase in the full retirement ageyou may be tempted to start benefits early, under the assumption that its better to have something than nothing. The 2020 annual report from the Social Security Trustees, released in April, projects that the Social Security Trust Fund has enough resources to cover all promised retirement benefits until 2035, and will cover 79% of scheduled benefits for new retirees thereafter without changing the current system. The 2020 report does not include an adjusted projection due to impacts, if any, from the pandemic.
Over the longer term, changes such as later benefit dates or means testing may be considered.
In any situation, if youre particularly concerned about the future prospects for Social Security, thats a good reason to save more, and earlier, for your retirement.
How Is Cost Of Living Calculated
Affordability is based on many factors, but one measuring stick is cost-of-living.
The Council for Community and Economic Research publishes its Cost of Living Index each quarter. It measures regional differences in the costs of consumer goods and services, minus taxes and non-consumer expenditures, for professional and managerial households in the top income quintile. The composite index is based on six categories:
- Health care
- Miscellaneous goods and services
The index is one way to identify affordable cities in which to live. Not all of the cities listed here are on C2ERs list. The housing price data used in each section is based on data from the U.S. Census Bureaus 2019 figures.
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Delay Taking Social Security
Full retirement age is 67 for older adults born in 1960 or later. You can begin taking your Social Security benefits as early as 62, but your benefits will be reduced for each year you take them ahead of schedule.
On the other hand, if you can put off taking your benefits past full retirement age, you’ll see your monthly benefit check increase. For someone who was born in 1943 or later and waits until age 70 to apply for Social Security, the increase should come to 8% per year.
Other Benefits Will Be Delayed If You Delay Your Old Age Security Payment
If you are not in receipt of the Old Age Security pension:
- you cannot get the Guaranteed Income Supplement
- your spouse cannot apply for the Allowance
Note: The Guaranteed Income Supplement and Allowance amounts dont increase when you delay receiving Old Age Security pension payments. You cannot receive the Guaranteed Income Supplement and your partner cannot receive the Allowance when you are not receiving the Old Age Security pension.
When monthly increases are not applied
If you decide to delay receiving the Old Age Security pension, you will not receive monthly increases during any month where you are:
- in federal prison as a result of a sentence of 2 years or longer
- outside Canada, have less than 20 years of residence in Canada and do not qualify under an international social security agreement
Children Can Collect Social Security Benefits Too
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. As long as the disability prevents the person from working, the adult child can continue collecting the benefit even after the parent has died.
Do Survivor Benefits Increase After Full Retirement Age
If you are the surviving spouse who is claiming benefits based on your deceased partner’s work record, there is no benefit to waiting until after FRA to claim your benefits. You do not earn delayed retirement credits, so your benefit will not increase.
However, if you are the higher-earning spouse, delaying your claim for benefits until after FRA can result in your widow receiving more monthly income, as your widowed partner will receive the higher of the two monthly benefits you were each receiving.
Is Your Full Retirement Age Affected By Where You Live
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.
Impact Of Inflation On Retirement Savings
Inflation is the general increase in prices and a fall in the purchasing power of money over time. The average inflation rate in the United States for the past 30 years has been around 2.6% per year, which means that the purchasing power of one dollar now is not only less than one dollar 30 years ago but less than 50 cents! Inflation is one of the reasons why people tend to underestimate how much they need to save for retirement.
Although inflation does have an impact on retirement savings, it is unpredictable and mostly out of a person’s control. As a result, people generally do not center their retirement planning or investments around inflation and instead focus mainly on achieving as large and steady a total return on investment as possible. For people interested in mitigating inflation, there are investments in the U.S. that are specifically designed to counter inflation called Treasury Inflation-Protected Securities and similar investments in other countries that go by different names. Also, gold and other commodities are traditionally favored as protection against inflation, as are dividend-paying stocks as opposed to short-term bonds.
Our Retirement Calculator can help by considering inflation in several calculations. Please visit the Inflation Calculator for more information about inflation or to do calculations involving inflation.
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Estimating Future Living Costs
Once you’ve looked at your benefit estimates, you can identify and add up all the living costsyou expect during retirement and see how far your Social Security benefits will get you. Some of the basics include housing, food, utilities and clothing. However, you’ll want to include many other items such as transportation, debt payments, health care costs, insurance, recreational activities, hobbies, personal care needs and miscellaneous expenses.
You’ll also want to consider any major purchases you might want to make such as paying for your grandchildren’s college or buying a vacation property. Also, inflation will factor in and lead to higher costs after retirement.
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Theres An Annual Social Security Cost
One of the most attractive features of Social Security benefits is that every year the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The Social Security COLA is quite valuable its the equivalent of buying inflation protection on a private annuity, which can cost a pretty penny.
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 will see a 1.3% COLA in their monthly Social Security benefits.
The Kiplinger Letter forecast in March that the 2022 COLA would be 3%, which would be the largest increase since 2012 when Social Security benefits ticked up 3.6%.
Heres what COLAs have been in other recent years:
- 2009: 5.8%
- 2021: 1.3%
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You’re In Poor Health
Retirement can last 20 or 30 years if you’re a healthy senior, but unfortunately, many people develop illnesses as they age. That’s why planning for healthcare costs in retirement is so important.
If you’re in poor health, you may need the extra money that Social Security benefits provideand opt to claim benefits early. And, sadly, if you think you may not live to be very old, you could come out ahead on a lifetime basis.
This strategy could backfire if you have a spouse. If you start collecting early, it will lower your monthly benefit. But it will also lower any survivor benefits your spouse is entitled to after you pass. If your spouse outlives you for many years, this could be a serious financial hit.
Increasing The Eligibility Age For Social Security Pensions
Social Security faces a long-term financing problem. Many young workers believe the problem is so severe they may never receive a Social Security check. The most logical solution to Social Securitys financing problem is to trim promised benefits and increase payroll taxes moderately. A sensible way to reduce future benefits is to increase the early eligibility age and normal retirement age for retirement pensions. This reform is justified by the substantial increase in life spans that has occurred since Social Security was established in the 1930s. An increase in life spans, when the normal retirement age remains unchanged, is equivalent to a sizable increase in lifetime Social Security benefits.
Increasing the retirement age is unpopular with voters. Unfortunately, so are all other reforms that would restore Social Security to solvency, including tax hikes and cuts in the formula for calculating full pensions.
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Can Too Many Early Retirees Affect Social Security
Regardless of when you retire, youll receive around the same amount of Social Security benefits over the course of your lifetime. This is due to cost-of-living adjustments that attempt to protect seniors from inflation.
In other words, Social Security balances itself out. Early retirees receive lower monthly benefits over a long period of time while late retirees receive larger benefit amounts over a short period of time. Retiring early does not affect the Social Security programs finances because the amount of benefits available does not depend on how early or late someone retires.
Can Early Retirement Affect My Social Security Benefits
Workers can start receiving full retirement age benefits at 66 years old if they were born between 1943 and 1954. For those born in 1955 and beyond, the full retirement age is 67. When a worker decides to receive their benefits earlier than the full retirement age, the total amount received is reduced. According to the United States Social Security Administration, a worker born in 1957 will receive a 27.5% reduction in total retirement income from Social Security when choosing to receive early retirement age benefits. Choosing to take early retirement will also affect the amount that a spouse will receive. In the same example, a workers spouse would also receive a 32.5% reduction in benefits. The actual percentage of early retirement age reduction will depend on several factors including the workers birth year and the date of the early retirement.
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Can You Retire On Social Security Alone
Funded by the Federal Insurance Contributions Act tax withholdings from your earnings, Social Security retirement benefits act as a safety net to replace your working income and help you pay for your living expenses. But as of 2021, the Social Security Administration reported that the average benefit for a retiree was $1,555 and that very few recipients used this source for at least 90 percent of their retirement earnings. Whether you’ll be able to retire on Social Security alone will depend on your future cost of living, preferred lifestyle and the specific payment amount you’ll be due upon your chosen retirement age.
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.
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Are Social Security Benefits Taxable At Full Retirement Age
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.
How Full Retirement Age Impacts Your Social Security Benefits
When you claim Social Security benefits earlybefore your full retirement ageyour total monthly benefit is decreased by a small percentage of your PIA for each month until your full retirement age. Conversely when you delay claiming benefits until after your full retirement age, it boosts your monthly benefit payment by a small percentage of your PIAup to the year you turn 70.
Your Social Security benefit is reduced by around half a percent for each month between the date when you claim benefits early and your full retirement age. At the very most, you could see a reduction of up to 30% of your PIA by claiming benefits before reaching full retirement age. A PIA of $2,000, for example, could be cut to $1,400 if you take your benefit as soon as you are eligible, rather than waiting for full retirement age.
On the other hand, delaying Social Security benefits until after your full retirement age could garner you a larger monthly benefit.
For every month after full retirement age, you add two-thirds of 1% per month up until you attain age 70, says Carroll. This means an increase of up to 8% per year that you delay taking benefits between full retirement age and age 70. For a beneficiary with a full retirement age of 66 and 6 months, a PIA of $2,000 could be increased to $2,600 by waiting to take benefits until age 70.
Social Security disability benefits do not have any specific retirement age, since disability can strike at any age.
How To Get The Biggest Benefit
Getting the maximum benefit available at age 70 might not be in the cards, but there are strategies you can employ to boost your benefit beyond delayed retirement credits.
For instance, if you have fewer than 35 years of income subject to payroll taxes, then working additional years eliminates zeros in Social Security’s calculation, increasing your historical average monthly earnings. Similarly, if your income is below the payroll tax limit, then lobbying for regular pay raises or working a second job that’s subject to payroll taxes can also increase your historical average monthly earnings, increasing your benefit.
Ultimately, the right age to claim Social Security depends on your personal situation. Frankly, what’s best for somebody else might not be best for you.
Nevertheless, increasingly more people are delaying Social Security to maximize their retirement income. According to Social Security, 40% of men and 44% of women who were eligible for Social Security benefits at age 62 were claiming them between 2000 and 2004, but those figures have since dropped to 22% and 25%, respectively.