How Will Working Affect Social Security Benefits
In a recent survey, 70% of current workers stated they plan to work for pay after retiring.1
And that possibility raises an interesting question: how will working affect Social Security benefits?
The answer to that question requires an understanding of three key concepts: full retirement age, the earnings test, and taxable benefits.
The Downside Of Claiming Early: Reduced Benefits
Consider the following hypothetical example. Colleen is 62 as of 2022. If Colleen waits until age 67 to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, she’ll receive only $1,400 a month. This “early retirement” penalty is permanent and results in her receiving 30% less year after year.
However, if Colleen waits until age 70, her monthly benefits will increase another 24% over what she would receive at her FRA, to a total of $2,480 per month.1 If she were to live to age 89, her lifetime benefits would be about $112,000 more, or at least 24% greater, because she waited until age 70 to collect Social Security benefits.2
Spouses And Social Security
You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is 35% while the reduction for claiming your own benefit is 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.
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Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be 30% less for the remainder of their lifetime.
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What Is My Full Retirement Age
Full retirement age for future beneficiaries will fall between the ages of 66 and 67. This is the age at which you can expect a full, unreduced benefit from Social Security. If you delay filing for benefits until after your full retirement age, you can expect a benefits increase of up to 8% per year until you reach age 70.
To Wait Or Not To Wait
Consider taking benefits earlier if . . .
- You are no longer working and can’t make ends meet without your benefits.
- You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
- You are the lower-earning spouse, and your higher-earning spouse can wait to file for a higher benefit.
Consider waiting to take benefits if . . .
- You are still working and make enough to impact the taxability of your benefits.
- Either you or your spouse are in good health and expect to exceed average life expectancy.
- You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.
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What To Consider Before Filing For Social Security
A larger benefit check sounds great, but there are tradeoffs, and soon-to-retire folks should consider multiple issues before they decide one way or the other on when to file. If you really want to consider all the avenues, then youll have to think about your finances and longevity two issues that people have a hard time grappling with.
But heres the key trade-off: you can file early and take a reduced benefit, expecting that a shorter life span will mean you receive more now, or you could file at full retirement age or later and claim a bigger check, and eventually live long enough to claim more than the first approach.
Social Security is like longevity insurance, says Brent Neiser, a Certified Financial Planner and former chair of the Consumer Advisory Board at the Consumer Financial Protection Bureau. Its a stream of payments that will not stop throughout your life, so delaying your benefits to keep those payments as large as possible forms a helpful base to your retirement plan.
Neiser urges those who have not saved enough for retirement to use whatever means possible to postpone their Social Security benefits until after their full retirement age to help boost their future income.
You can use personal savings to help bridge the gap, but ideally you should plan to work a little longer , Neiser says.
Social Security Death Index
Social Security collects death information to administer their programs this death information is compiled into the Death Master File , Social Securitys electronic database. The DMF was created in 1980 and contains records of people with Social Security numbers that have been reported dead from 1962 onward. Two versions of the DMF are prepared. The first is the full file, containing all death records, including those received from the States. This file is shared only with certain Federal and State agencies. The second is the public file, known as the Social Security Death Index.
The Social Security Death Index contains death records extracted from the Social Security database, excluding data received from the States. The records in the index each have a set of information that includes a full name, birth year and date, death year and date, and Social Security number and place of issue.
The Social Security Death Index is a helpful tool in preventing identity fraud, verifying death, and doing genealogy work. It is used by leading government agencies, medical researchers, genealogists, biographers, and investigative firms. You can access some of these records through online sites such as FamilySearch.
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What Are The Consequences Of Claiming Social Security Early
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Some people may wonder if they should start taking Social Security at age 62. After all, age 62 is the earliest age you can begin drawing on Social Security benefits, and like many, you are probably inclined to start drawing benefits as soon as you can.
Before you head to your nearest Social Security office to apply, evaluate all your options. Starting Social Security is almost a permanent decisiononce you start collecting Social Security, you can only stop benefits if you are within the first 12 months after starting. And, in that case, you will have to repay what you received before ending your collection. Your other option for pausing the collection of retirement benefits is when you are over your full retirement age, you can suspend benefitssometimes called a voluntary suspension.
Claiming early benefits has consequences if you are married, you are forever reducing the survivor benefit available to your spouse .
Another consequence of taking early Social Security is the way any additional earned income you have might affect your benefits. We cover that in the next step.
The longer you wait, the higher your check up to a certain age limit. Often, it’s best to wait as long as you can up to age 70. If you wait until age 70, you get 132% of your full amount!
Who Is Eligible For Social Security Retirement Benefits
The U.S. Congress passed the 1935 Social Security Act as a way to supplement retirement earnings for primary working Americans. The original law also included the nations first unemployment insurance program as well as several health and welfare programs. Shortly thereafter, the law was changed to add survivor benefits for spouses and children, and in 1956 disability benefits were also added.
The Social Security Administration now serves 60 million Americans who will receive $870 billion in benefits in 2015.
The administration of such a large benefits program can be complicated at times, with numerous special instances, exceptions and nuances that can impact how benefits are disbursed to recipients.
This guide will introduce applicants to the basics of applying for Social Security retirement benefits and answer many of the common questions that arise when first considering to apply for benefits.
It will also address many special circumstances that can arise involving spouses and children, specific circumstances regarding timing, amounts, and maximizing benefits while also offering a comprehensive list of resources that may prove valuable throughout the Social Security retirement benefits process.
How Does Social Security Affect Medicare And My Retirement Benefits
Although Medicare is a separate benefit offered by the government, it often times goes hand in hand with Social Security retirement benefits as a means of providing a financial safety net for retired workers.
Medicare is the government sponsored health insurance plan for people who are at least 65 years old. The only exceptions to this are the disabled or those who have permanent kidney failure, both of whom can get Medicare at any age.
Medicare is broken into four parts:
Medicare Part A Hospital insurance that helps pay for in-patient hospital care and some follow-up services.
Medicare Part B Medical insurance that helps pay for doctors services, outpatient hospital care and related medical services.
Medicare Part C Medicare Advantage Plans allow people to combine Part A and Part B to get medical services from a single provider organization.
Medicare Part D Prescription drug coverage helps pay for prescribed medications.
Medicare and Social Security benefits are linked in that when you turn 65 years old, your Part A Medicare hospital insurance begins automatically. If you live in the United States or U.S. territories, youll also be enrolled in Part B Medical insurance coverage as well.
Regardless of whether or not youre getting Social Security benefits, you should sign up for Medicare about three months before your 65th birthday.
Other Factors To Consider
When planning for retirement, however, theres more to consider than just dollars and cents. You could pocket the most money in the long term by waiting to start your benefits, but only if you live past the break-even point.
Thats where other factors such as your physical condition and family situation come into play. Suppose you reach claiming age in poor health. Do you expect to live long enough to make up for the payments youd forgo by delaying? On the other hand, is your spouse going to be depending on your benefits after you die? The tradeoff for starting your payments early could be lower survivor benefits for your mate.
Other income, or assets such as a pension or IRA, might affect your claiming decision. Perhaps you like your job and want to keep working well into your 60s, or you can afford to live on your savings while you delay Social Security and boost your eventual benefit. On the flip side, if youre unable to work and need the money, collecting Social Security benefits early could help you make ends meet.
A financial adviser can help you weigh the pros and cons to determine what option works best for you.
Keep in mind
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Survivor And Death Benefits
Wage earners depend on Social Security retirement benefits to help meet financial needs when they stop working, but sometimes these earners can pass away early and unexpectedly. When workers pay into Social Security, a majority goes to fund disability and retirement costs, but a portion of their taxes go toward survivors benefits as well.
When a worker passes away, some family members may be eligible for survivors benefits if the worker earned enough credits during their working lifetime. Eligible family members include widowed spouses who are 60 or older, 50 or older if they are disabled, or any age if caring for a child who is under 16 years old. Children of deceased workers are also eligible if they are not married and under 18 years old, or under 19 years old but still in school. If youre divorced and you or your spouse pass away, the surviving spouse could be eligible for a widows benefit as well.
If a worker has enough work credits when they pass away, Social Security will also make a one-time payment of $255. This payment can be made only if the spouse or child meet certain specified requirements.
To apply for survivors benefits, Social Security will need the following, either original copies or certified copies, from the issuing agency.
Benefits For Children With Disabilities
A child under age 18 may have a disability, but we don’t need to consider the child’s disability when deciding if he or she qualifies for benefits as a dependent. The child’s benefits normally stop at age 18 unless they are a full-time student in an elementary or high school or have a qualifying disability.
Children who were receiving benefits as a minor child on a parents Social Security record may be eligible to continue receiving benefits on that parents record upon reaching age 18 if they have a qualifying disability.
How Age Affects Benefits
You become eligible to collect your full retirement benefit 100 percent of the amount youre entitled to receive based on your lifetime earnings history at full retirement age , which is 66 and 4 months for those born in 1956 and will gradually rise to 67 for those born in 1960 and later.
The minimum age to begin benefits is 62, but Social Security reduces your monthly payment by a fraction of a percent for each month before the FRA that you claim. Someone born in 1960 who starts benefits in 2022 will get as little as 70 percent of their full monthly benefit. That reduction is permanent.
If you put off claiming benefits until after full retirement age, Social Security bumps up your prospective payment for each month of delay. That 1960 baby would get 124 percent of their full retirement benefit, for life, by waiting until their 70th birthday to start Social Security.
Why do benefits increase if you wait past 62? Because Social Security works by the principle that over the course of a retirement, you should receive the same total amount regardless of the age at which you start benefits. Monthly payment levels are calculated so that if you file for reduced benefits at 62, you will receive the same total amount as if you start at 70, or at any age in between, if you live to an average life expectancy.
Of course, the average is just that an average and most people live either shorter or longer lives. Thats where the break-even point comes in.
What Is The Average Social Security Benefit At Age 80
Social Security was created at a time when the average life expectancy in America was just 51 to 65 years, depending on sex and race. At that time, living to age 80 was much less common than it is today, which is one of the many reasons that modifications to the program are a constant topic of discussion.
Regardless of age and era, Social Security was never intended to fully replace a workers income in retirement. Heres a look at the current average Social Security benefit at age 80, along with suggestions as to how to maximize the amount you earn and buffer it with supplemental income.
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How To Plan For Future Benefits
In 2000, the average age at which people retired was roughly 61 or 62. Two decades later, its around 66, according to government data, Warshawsky said.
Just in 20 years, weve seen a substantial increase in the retirement age, Warshawsky said. People really, really are working longer.
Anecdotally, Elsasser said he sees more people retiring earlier than they had anticipated as their work prospects change.
That highlights the importance of planning ahead, so you anticipate whatever your retirement years bring. Admittedly, that can be tricky, given that Social Security could be susceptible to change.
If youre 60 and up, there is less reason to worry any prospective changes would affect your benefits, Elsasser said.
But if youre 45 to 60 years old, its reasonable to plan for benefit reductions of about 5%, he said. For those who are even younger, a 10% to 15% cut is possible.
Moreover, people of all ages should also plan for worst-case scenarios in which the program does reach a point where it can only pay a portion of benefits, which may prompt as much as a 24% benefit cut for retirees.
The real importance of planning is just making sure you have all your bases covered, Elsasser said.
You Can Undo A Social Security Benefits Claiming Decision
There arent many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Lets say you claimed your benefit, but now regret the decision and wish you had waited. During the first 12 months of claiming benefits, you can withdraw your application. You will have to repay all of the benefits youve received, along with any spousal benefits, but when you restart benefits, youll receive a larger amount, just as you would have if you had delayed filing in the first place.
If it has been more than 12 months since you filed for Social Security, you cant withdraw your application and restart benefits at a later date. But early retirees who have returned to the workforce are not totally out of luck: Once you reach full retirement age, you can suspend benefits until age 70. This will enable you to earn delayed-retirement credits of 8% a year . This can add up to tens of thousands of dollars for many people, says William Meyer, chief executive of Social Security Solutions.
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