Claiming Social Security Benefits At The Right Time Means More Money In Your Pocket Heres A Guide To Everything From Knowing Your Full Retirement Age To Taking Social Security Spousal Benefits
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When youre years away from retirement, Social Security seems straightforward: Youll leave your job, file for benefits and receive a monthly check for the rest of your life boom! But in reality, getting the most out of Social Security is anything but simple. As you near retirement, the decisions you make could have a significant impact on the amount of money you receive, and some of these choices are irrevocable. Youll need to move carefully to maximize this income stream.
Here are 12 essential details you need to know.
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What Is The Maximum I Can Receive From My Social Security Retirement Benefit
The SSA has a table to help you determine the social security max for 2023. The numbers below are accurate as of December 14, 2022.
| Age at retirement | |
|---|---|
| 70 | $4,555 |
This doesnt mean that if you retire at 70 in 2023, youll get a $4,555 check every month. The maximum is for people who earned a high income for at least 35 years.
Social Security payments are typically increased by a small percentage every year. These increases are called cost-of-living adjustments . Social Security is often seen as the foundation of retirement income, because it is guaranteed and inflation proof.
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Social Security For The Disabled
People who are disabled, are dependents of retired or disabled workers, or are surviving spouses/children may also receive benefits. Note that this is supplementary information and that the Social Security Calculator only provides calculations for retirement benefits.
The SSAs definition of disability refers to total disability, so partial or short-term disabilities are not qualified for benefits. Under the SSAs rules, a person is disabled only if they meet all of the following conditions:
- They cannot do work they did before
- The SSA decides that they cannot adjust to other work because of their medical condition
- The disability has lasted or is expected to last at least one year or to result in death
Benefits usually continue until beneficiaries are able to work again. Disability beneficiaries that reach full retirement age will have their benefits converted into retirement benefits, with the amount remaining the same. It is against the law to receive both disability and retirement benefits at the same time.
Social Security Disability Insurance
Supplemental Security Income
In some situations, it is possible to receive both SSDI and SSI. This usually happens when a qualified application for SSDI is granted low enough an SSDI benefit to make the applicant also eligible for SSI.
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Child Beneficiaries December 2020
About 2.9 million children under age 18 and students aged 1819 received OASDI benefits. Children of deceased workers had the highest average payments, in part because they are eligible to receive monthly benefits based on 75% of the workers PIA, compared with 50% for children of retired or disabled workers. Overall, the average monthly benefit amount for children was $653.
Choose To Receive Social Security Benefits At Age 70
Social Security payments are available beginning at age 62. If you wish to receive the maximum benefits, hold off on receiving the benefits and opt to wait until age 70. You will get the largest possible monthly check.
Based on your birth year, if your full retirement age is 67 and you decide to collect your Social Security benefits at 62, your benefits will reduce by up to 30%.
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The Best Way To Avoid The Earnings Limit
The best way to avoid the earnings limit is to wait until you reach FRA to begin your benefits. Understandably, some people have no choice and must start benefits because they are laid off and they have no other income or assets. If this happens to you but your situation changes and you go back to work, you can withdraw your application for Social Security within 12 months of starting benefits.
Other people, however, do have a choice perhaps they could use some of their savings or retirement money to tide them over until they reach FRA. That may be a better option than starting Social Security early.
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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.
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How To Estimate Your Social Security Income
Two facts are knownSocial Security benefits are not guaranteed, and some changes will be necessary to keep the system solvent in the future as millions of baby boomers retire and begin to receive their Social Security benefits. Though these facts create uncertainty, its also true that the quality of your retirement depends on your planningand you must start planning somewhere.
A good starting point is to figure out the dollar amount of the retirement benefits to which all of your years of Social Security contributions entitle you under current law. There are four ways to do this:
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%.
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How To Use Credit Karmas Social Security Calculator
Every time you get paid, your employer is required to withhold a portion of your earnings to cover payroll taxes. Also known as FICA, or the Federal Insurance Contributions Act, this money is used in part to pay your Social Security taxes, which go toward funding retirement and disability benefits.
You wont be able to collect Social Security until youre retired, or have another qualifying circumstance, such as a disability.
Learn About The Calculations That Determine Your Social Security Benefits
You probably expect to get some money from the government in retirement, but how much you get depends on the Social Security benefits formula. Many don’t understand how this formula works or when it applies, but it’s not too difficult to figure out as long as you’re comfortable with some basic arithmetic. Below, we’ll break it down step by step so you can better estimate how much money you’ll get from the program.
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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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Four Ways Benefits Can Be Increased Or Decreased
There are four ways the starting benefit can be permanently increased or reduced from the PIA calculated at age 62:
- Starting benefits earlyBenefits may begin as soon as age 62, but they are permanently reduced for every month between the onset of benefits and FRA.
- Delaying benefits beyond full retirement ageDelayed retirement credits can permanently increase benefits, and they are awarded for every month between FRA and a later onset of benefits.
- Starting early and continuing to workIf you start benefits before your FRA and keep working, the SSA may deduct the part of your benefits that exceeds a threshold. However, any such deductions are not permanent. When you reach your FRA, the SSA recalculates your benefits and credits back any deductions.
- Continuing to work, periodEven if you dont start benefits early, you can increase your benefits by continuing to work up to any age. Any year in which your indexed earnings are higher than one of your 35 previous highest years will boost your benefits. However, after age 60, you will not receive wage indexing, and after age 62, you will not receive bend point inflation indexing.
All four points are related to your starting Social Security benefits. Keep in mind that when your benefits start, the COLA will increase them annually. If you start benefits at age 66, your PIA automatically increases with the applicable COLAs from the years in which you turn 63 through 66.
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What’s Full Retirement Age
Full retirement age is when you’re eligible to receive full Social Security benefits. Your full retirement age depends on your birth year: For anyone born in 1960 or later, full retirement age is 67. For those born in 1955 through to the end of 1959 , full retirement age ranges between 66 and 2 months and 66 and 10 months. If you were born before 1955, you’ve already reached age 66 and full retirement age.
| If you were born in… | Your full retirement age is… |
|---|---|
| 1954 or earlier | You’ve already hit full retirement age |
| 1955 | |
| 67 |
What If I Take Benefits Early
If you choose to take your own Social Security benefit before your full retirement age, be aware that the 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 worker benefit is further reduced by five-twelfths of 1% per month for the rest of retirement.
For example, lets assume you stop working at age 62. If your full retirement age is 67 and you elect to start benefits at age 62, the reduced benefit calculation is based on 60 months. So, the reduction for the first 36 months is 20% and then another 10% for the remaining 24 months. Overall, your benefits would be permanently reduced by 30%.
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Factors That Affect How Much Youll Get In Retirement
Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. Gordon is a Chartered Market Technician . He is also a member of CMT Association.
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Most retirees rely on Social Security. One in four gets 90% of their retirement income from the program. About half rely on it for 50% of their income.
Although Social Security is only one part of a secure retirement plan, its helpful to get a rough idea of how much you can expect. If youre eligible for Social Security, your monthly benefit is based on two factors:
- How much money you earned during your working career
- The age you choose to start getting payments
Lets look at how each of these affects your future Social Security income.
Adjust Your Pia For The Age You Will Begin Benefits
The final amount of Social Security retirement benefit that you receive is based on the age when you begin benefits.
The earliest you can begin retirement benefits is age 62 . You will get more by waiting until a later ageas late as age 70to begin receiving benefits.
Of course, another complex formula is used to determine how much more you will receive if you wait.
This formula uses your Primary Insurance Amount calculated in the previous step. This is the amount you will get if you start benefits at your full retirement age . Your FRA can vary, depending on the year you were born. For people born between 1943 and 1954, as in our example, the FRA is age 66.
For people born on January 1, the FRA is based on the year prior. Someone born on January 1, 1955, will have an FRA based on 1954.
A reduction is applied to your PIA if you begin benefits before your FRA. A credit, referred to as a delayed retirement credit, is applied if you begin to receive benefits after your FRA.
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The Recalculation Of Social Security Benefits
Since a recalculation of benefits is the least common method the SSA will use, lets quickly cover that. Then well move on to the much more common recomputation of benefits.
A recalculation is only performed to correct a benefit that was calculated with incorrect or missing earnings . For example, if there were earnings included in your initial benefits computation that was found to be incorrect, your benefit would be recalculated. And again, remember that a recalculation can increase OR decrease your benefit.
Determine Your Wages For Each Year You’ve Worked
The federal government keeps track of how much money you’ve paid Social Security taxes on each year in your earnings record. You can view this in your my Social Security account.
For most people, their actual income and the income they’ve paid Social Security taxes on are the same. But this isn’t always the case with high earners. In 2022, for example, you only pay Social Security taxes on the first $147,000 you earn. In 2023, this amount increases to $160,200. So if your earnings record shows $147,000 for 2022, that’s not a mistake, even if your actual income for the year was much higher.
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Is There A Maximum Benefit
Yes, there is a limit to how much you can receive in Social Security benefits. The maximum Social Security benefit changes each year. For 2022, itâs $4,194/month for those who retire at age 70 . Multiply that by 12 to get $50,328 in maximum annual benefits. If that’s less than your anticipated annual expenses, youâll need to have additional income from your own savings to supplement it.
Working In Retirement: How Does It Affect Social Security And Medicare
Are you retired but considering going back to work?
Whether youre in it for the extra income, or merely getting paid for something you enjoy doing anyway, its important to understand how bringing home a paycheck in retirement could affect your Social Security benefits and medical insurance coverage.
Here are a few things to consider before punching that timecard.
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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.