Tell Social Security About Your Return To Work
If you plan to return to work, you should notify the SSA right away, Elsasser advised. That way, the agency can start to reduce your checks now.
If you don’t, you could be in for an unwelcome surprise early the next year when the IRS reports your earnings to the SSA.
If that happens, you may get an unexpected letter from the SSA notifying you that they are stopping your benefit right away until any earnings penalty from the prior year is made up.
That may disrupt your cash flow, which you may not be expecting.
Can I Use The Calculator To Figure Out Social Security Disability Insurance And Supplemental Security Income
No. SSDI is aimed at people who cant work because they have a medical condition expected to last a year or more or result in death. Your SSDI benefits last only as long as you suffer from a significant medical impairment while not earning significant other income.
SSI is a separate program for people with little or no income or assets who are 65 or older, as well as for those of any age, including children, who are blind or who have disabilities. The maximum monthly SSI payment for 2022 is $841 for a single person and $1,261 for a couple. But some states add to that payment, and you may receive less than the maximum if you or your family has other income. Get more information about SSDI and SSI from the Social Security Administration.
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Are There Retirement Benefits For My Family Members
Once you start collecting Social Security, other family members may be entitled to collect benefits as well, based on your work history. If youve been married for at least one year, your spouse may be entitled to collect spousal benefits. Under certain conditions, your children may also be entitled to benefits.
There is a limit on the amount of benefits that family members receive on the earnings record of one worker. The limit varies between 150% and 188% of the workers PIA. If the total benefits owed to your spouse and children push your familys benefits above the limit, their benefits will be reduced proportionately to bring the total within the limit. Your benefits will not be affected. Any benefits payable to an ex-spouse arent included in the family maximum.
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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 2022 is $19,560. 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%.
How Social Security Benefits Are Calculated
Qualifying for Social Security in the first place requires 40 work credits or approximately 10 years of work. To be eligible to receive the maximum benefit, you need to earn Social Securitys maximum taxable income for 35 years. The cap, which is the amount of earnings subject to Social Security tax, is $160,200 in 2023, up from $147,000 in 2022.
Social Security benefits are calculated by combining your 35 highest-paid years . First, all wages are indexed to account for inflation. Wages from previous years are multiplied by a factor based on the years when they were earned. This calculation gives an amount comparable to buying power based on the current value of the dollar. Accounting for this valuation change is important because a salary of $14,000, for example, was far more impressive in 1954 than it is today.
Once all wages have been indexed, your average indexed monthly earnings is computed by dividing the sum of all indexed wages by 420 . If you worked fewer than 35 years, a zero is entered for years when you did not work. The benefit amount is then calculated based on factors that include the year when collection begins, whether you have reached FRA, and whether you continue to work while collecting benefits.
Once you reach age 70, there is no reason to wait longer to start collectingyour benefit wont increase further.
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Other Pensions Might Reduce Your Social Security Benefits
Your benefits will be affected if you have a pension from a job that didnt have Social Security taxes taken out of your paycheck. Common examples include people who worked for a public education system, railroad workers and Federal government employees hired before 1984 who are covered by the Civil Service Retirement System .
Two complicated provisions will affect your claiming strategy: the Windfall Elimination Provision and the Government Pension Offset . The WEP reduces your own benefits by a discounted factor based on how many years you worked in jobs that did not withhold Social Security taxes. The GPO reduces your spousal and survivor benefits by two-thirds of the amount of your noncovered pension.
Your Social Security Money Is Based On Your Income
The amount of money you make during your career plays an important role in determining how much money youll receive from Social Security. If you work a total of 45 years, only the highest 35 years of earnings would count toward your benefit amount. For example: If you earned $35,000 for the first 10 years of your employment history and $55,000 for 35 years, only the $55,000 income would count .
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What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a delayed retirement credit for your own benefits . For example, say you were born in 1960, and your full retirement age is 67. If you start your benefits at age 69, you would receive a credit of 8% per year multiplied by two . This means your benefit would be 16% higher than the amount you would have received at age 67.
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How Much To Save For Retirement
Naturally, the next question becomes: how much should a person save for retirement? Simply put, its an extremely loaded question with very few definite answers. Similar to the answer to the question of whether to retire or not, it will depend on each person, and factors such as how much income will be needed, entitlement for Social Security retirement benefits, health and life expectancy, personal preferences regarding inheritances, and many other things.
Below are some general guidelines.
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Create A My Social Security Account
To see all of your Social Security benefits online, youll first need to create a My Social Security account. Heres what to do.
1. Go to ssa.gov on your browser and select my Social Security.
2. Next, click Create an Account.
3. Youll be prompted to sign in with your ID.me account or login.gov account unless you created an account before Sept. 18, 2021. Note that youll need to create one of those accounts if you dont have one.
4. Once you have an account, youll need to agree to the terms of service to continue.
5. Next, youll need to verify your identity. The Social Security Administration will send a one-time security code to your email that youll need to enter within 10 minutes to continue to your account.
You should now have access to all of your Social Security statements and other details online.
How To Calculate Social Security Benefits In 3 Simple Steps
As you begin to plan for retirement, you must have a good estimate of your monthly retirement benefits from Social Security. This monthly benefit amount significantly influences your monthly budget and might determine whether you can retire now or need to keep working for a few more years. Many people ask, How is Social Security calculated? The calculation is somewhat complex, but we will walk you through the details of how to perform the calculation on your own. We will also point you toward an easy benefit calculator that takes out all the guesswork. Lets get started!
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How To Calculate Social Security Benefits In Excel
If you are in your late 50s and approaching retirement, you can create a useful model of your future benefits. It works best to do this in a Microsoft Excel spreadsheet, as follows:
- Using a recent Social Security statement, list in spreadsheet column A your taxable Social Security earnings year by year.
- List in column B the most recently published NAWI adjustment factors as published by the SSA.
- Multiply columns A and B and output the result to column C.
- Identify in column D the 35 highest values in column C. Add these together and divide the sum by 420 . This will approximate your AIME.
- Use the most recently published bend points to convert your AIME into a PIA.
You also can fill in hypothetical values for estimated taxable Social Security earnings in future years until you plan to stop working. To be conservative, use a NAWI adjustment factor of 1.0000 in column B for all future years.
A financial advisor who fully understands this process can help verify your calculations, advise you on when to start Social Security benefits, and estimate the future benefits you can expect to receive.
Do You Have Enough Money To Retire Now
Our Retirement Savings Calculator can help you answer that question, which depends on a number of different factors, including your current age, how much you have already saved for retirement and how many years of retirement income you think youll need in the future. If are considering an early retirement, you will want to think about how your pension and Social Security will be affected. If you have a pension with your employer, when are you eligible to start receiving it? Will it be a lump sum payment, a monthly pension amount or both? You may begin receiving Social Security benefits as early as age 62 or as late as age 70. Keep in mind, however, that if you retire early, your benefits are reduced by a certain percentage for each month before your full retirement age.
Our Financial Education articles can offer you additional financial tips about Social Security, taxes, health care and more to help you determine how much money you need to retire at age 50, age 55, age 60, age 62 and age 65.
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How Much Social Security Will I Get In Retirement
In this article:
The amount of your monthly Social Security retirement benefit depends on multiple factors, including how much you earn over your working life, how old you are when you retire and allowances for inflation. Understanding how the payment is calculated can help you estimate what to expect and better position yourself to plan for retirement. Here’s how it works.
Compare Two Application Ages
Use the following calculation to compare the financial difference between two Social Security retirement benefit application ages. The U.S. Social Security website provides estimated benefit payment amounts of different claim ages.
The term Social Security is used in the U.S. to refer to the system that provides monetary assistance to people with inadequate or no income. The term can be better understood by thinking of it as the financial security of society. Although they may not go by the same name, there are many similar government systems in place throughout the world. This calculator is specifically intended for U.S. Social Security purposes.
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Fact #: Social Security Benefits Are Modest
Social Security benefits are much more modest than many people realize the average Social Security retirement benefit in January 2022 was about $1,614 per month, or about $19,370 per year. For someone who worked all of their adult life at average earnings and retires at age 65 in 2022, Social Security benefits replace about 37 percent of past earnings. Social Securitys replacement rate fell as the programs full retirement age gradually rose from 65 in 2000 to 67 in 2022.
Most retirees enroll in Medicares Supplementary Medical Insurance and have Part B premiums deducted from their Social Security checks. As health care costs continue to outpace general inflation, those premiums will take a bigger bite out of their checks.
Social Security benefits are also modest by international standards. The U.S. ranks just outside the bottom third of developed countries in the percentage of an average workers earnings replaced by the public pension system.
Social Security is important for children and their families as well as for older adults. Over 6.5 million children under age 18 lived in families who received income from Social Security in 2019. That number included nearly 2.8 million children who received their benefits as dependents of retired, disabled, or deceased workers, as well as others who lived with parents or relatives who received Social Security benefits.
Social Security lifted 1.1 million children above the poverty line in 2020, as the chart shows.
How Social Security Is Calculated Summary
Heres the bottom line about how Social Security is Calculated:
Every years earnings are indexed for inflation, and then the 35 highest are considered when calculating your benefit.
Next, the 35 highest inflation-adjusted years are added together and averaged, to arrive at your lifetime average Social Security earnings.
This amount is divided by 12 to determine your Average Indexed Monthly Earnings .
Lastly, once your monthly average is determined, it is applied to this formula to determine your Primary Insurance Amount .
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How Will My Retirement Benefits Be Taxed
Approximately one-third of people who collect Social Security benefits are required to pay income taxes on these benefits. Individuals with higher total incomes must include up to 85% of their benefits as income for federal income tax purposes, designated by special step-rate thresholds. However, the taxation thresholds for your benefits arent currently indexed for inflation.
Policy Basics: Top Ten Facts About Social Security
Social Security provides a foundation of income on which workers can build to plan for their retirement. It also provides valuable social insurance protection to workers who become disabled and to families whose breadwinner dies.
Eighty-six years after President Franklin Roosevelt signed the Social Security Act on August 14, 1935, Social Security remains one of the nations most successful, effective, and popular programs.
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Next Steps To Consider
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
Investing involves risk, including risk of loss.
Past performance is no guarantee of future results.
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How Much Do You Have To Make To Get Maximum Social Security
To receive the maximum Social Security benefit, you would need to earn at least the maximum wage taxable by Social Security for 35 years and delay claiming the benefit until you reach 70. The earnings cap adjusts every year based on changes to the national average wage index and is $160,200 in 2023, up from $147,000 in 2022.
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Social Security Benefit Calculator
Social Security benefits can be an important factor to consider in your future retirement income. Use this calculator to estimate what your retirement benefit amount could be.
An Ameriprise advisor can look at your overall financial picture and provide personalized advice to help you meet your retirement income goals.
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.
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