Working In Retirement: How Does It Affect Social Security And Medicare
Are you retired but considering going back to work?
Whether you’re in it for the extra income, or merely getting paid for something you enjoy doing anyway, it’s 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.
How Do I Change My Direct Deposit Instructions For My Retirement Check
Print and complete the Electronic Funds Transfer Authorization form and return it to one of our offices. Forms received by the 14th of the month take effect the same month. You may also make this change yourself through your PERS secure, on-line account. Due to our pre-notification process, you may receive your monthly check by mail for that month only, and then the following month, we will direct deposit your benefit into the new bank account.
To Postpone Or Not To Postpone
You can start receiving Social Security at 62, but your monthly payments will be larger for every month you delay claiming them up to age 70. Once you turn 70, there is no benefit to holding off any longer.
For example, if you were born in 1960 and start your retirement benefits at age 62 while your full retirement age is 67, your monthly benefit is reduced by a whopping 30%. However, if you wait until you turn 70 to sign up, you could increase your benefit by 8% every year.
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Increasing The Eligibility Age For Social Security Pensions
Summary
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.
Measuring The Impact Of Additional Working Years On Social Security Benefits Calculation
So given these dynamics for calculating Social Security benefits, what are the consequences of someone continuing to work and adding in more years of income either leading up to becoming eligible for retirement benefits, or even in their 60s and beyond as they are already eligible for benefits?
As noted earlier, for Social Security the income replacement tiers are always the same percentages with the same thresholds, regardless of how long someone worked . Thus, regardless of the number of years worked, the formula to convert the AIME into PIA will always be the same, even with additional working years.
However, what does change with additional working years is the calculation of the AIME itself. Since the AIME is calculated based on the highest 35 years of earnings and they can even be non-consecutive years then additional working years that add to the highest-35, and knock off a prior lower income year, can increase the AIME calculation, and therefore the amount of Social Security benefits.
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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.
How Social Security Benefits Are Calculated
Similar to a pension, Social Security provides a stream of retirement income that continues as long as the recipient is alive . And also like a pension, Social Security calculates its benefits by applying an income replacement formula, based on the earnings of the individual during his/her working years.
The difference, however, is that while a pension might simply be calculated based on an individuals last-3 or last-5 years of earnings, Social Security is actually paid out based on an average of 35 years of lifetime earnings. And it doesnt have to be a consecutive 35 years or the last 35 years Social Security uses whatever the highest 35 years were over the workers entire career.
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Change Is Always Possible
It’s not hard to understand why the solvency of Social Security has been the center of a growing national debate over the past few years. It’s simple economics.
More people are retiring than entering the workforce, which will eventually reduce the ratio of workers to retirees to 2-to-1 . In addition, people are living much longer in retirement, sometimes decades longer.
Under the pressure of possible insolvency, Congress has debated several Social Security reform measures in recent years. While no new legislation has been passed, the possibility continues to exist for dramatic revisions to this social insurance system to come about in the future, changing how Social Security factors into your retirement planning.
To learn more about your benefits, visit the Social Security website at www.ssa.gov.
Report The Death Of A Social Security Or Medicare Beneficiary
You must report the death of a family member receiving Social Security or Medicare benefits. The Social Security Administration processes death reports for both. Find out how you can report a death and how to cancel benefit payments. In addition to canceling SSA and Medicare benefits, find out what other benefits and accounts you should cancel.
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How Would This Affect Me
Most reform proposals are gradual. One proposal would raise the full retirement age by one month every two years to match Americans rising longevity. Another proposes steeper but still gradual increases to further reduce Social Securitys future costs. However its accomplished, raising Social Securitys full retirement age makes sense because it corresponds with Americans lengthening lifespans and reduces the programs costs to lessen the burden on the next generation.
What Are Social Security Retirement Benefits
American workers pay Social Security taxes on their income. If they have paid enough into the system by retirement by earning 40 work credits, they are eligible to receive benefits.
How much in benefits you’ll receive depends on whether you take Social Security early or opt to wait until full retirement age. For people born in 1943 through 1954, the full retirement age is 66. However, the full retirement age increases each year gradually until it reaches age 67 for those born in 1960 or later.
People can choose to receive Social Security benefits even though they haven’t reached full retirement age as long as their earnings are under the income limit, which for 2021 is $18,960, and for 2022, it is $19,560. For earnings above the income limits of 2021 or 2022, $1 in Social Security will be withheld for every $2 earned.
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Calculating Average Indexed Monthly Earnings
The caveat to calculating an average of a workers highest 35 years of historical earnings is that in the distant past, earnings were typically lower not just because the worker might have been earlier in his/her career, but simply because inflation lifts average wages over time . For instance, the chart below is an example of one worker’s hypothetical historical earnings, with a high point in the early years but in general a slow upward trend to earnings over time.
Accordingly, when Social Security determines the 35-year average of earnings, it first inflation-adjusts those earnings into current dollars using the National Average Wage Index. Technically, this is done by inflation-indexing all historical earnings into a base year that was 2 years before the individual turned 62 and first became eligible for benefits. Thus, a 62-year-old in 2016 will have historical earnings inflation-adjusted to the 2014 wage index in general, Social Security benefits are indexed to wage levels 2 years before becoming eligible at age 62, which means indexed to the individuals age 60. This ensures that benefits based on historical average wage calculation isnt indirectly reduced simply due to the fact that wage inflation hadnt yet occurred in the past.
Once inflation-adjusted earnings have been calculated throughout all the working years, its possible to determine which were the highest 35 years of earnings that will be included in the Social Security benefits calculation .
How Do Social Security Benefits Increase After Age 66
If you start receiving benefits at age 66 you get 100 percent of your monthly benefit. If you delay receiving retirement benefits until after your full retirement age, your monthly benefit continues to increase. … 67, you’ll get 108 percent of the monthly benefit because you delayed getting benefits for 12 months.
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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 2022 that limit is $19,560.
- 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 2022, the limit on your earnings for the months before full retirement age is $51,960.
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:
Fact #: Social Security Is Particularly Important For People Of Color
Social Security is a particularly important source of income for groups with low earnings and less opportunity to save and earn pensions, including Black and Latino workers and their families, who face higher poverty rates during their working lives and in old age. The poverty rate among Black and Latino older adults is roughly 2.5 times as high as for white seniors. There is a significant racial retirement wealth gap, leading older adults of color to face more retirement insecurity than their white counterparts. Black and Latino workers are less likely to be offered workplace retirement plans, and they are likelier to work in low-wage jobs with little margin for savings. Social Security helps reduce the economic disparities between older white adults and older adults of color.
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The Social Security Office Isnt Always Correct
It is not a fun fact but a fact, nonetheless.
You must know what you are owed and be your own best advocate. If you consider the massive number of beneficiaries the Social Security Administration is responsible for, you can decipher that there could be some room for error.
As weve established, the Social Security system as a whole is confusing. The SSA has over 60,000 employees and though many of them likely know the ropes, there are thousands that jump into the job with very minimal training.
Even if one employee were to learn and memorize all the rules and regulations, these change so frequently that you can never be sure they know it all.
With that said, mistakes get made. The worst part of it all, nearly all Social Security claims are set in stone once determined. This means, if you are talking to someone at the SSA that has inaccurate information and helps you file for benefits, that error is likely permanent.
To get the most out of your benefits, know before you go. Do as much research as you can on your own to determine what your benefits should be and take that information with you.
Additionally, triple check every line of information before making an official filing.
Maximum Taxable Earnings Going Up
In 2022, the maximum earnings subject to Social Security taxes was $147,000. That is, workers paying into the system are taxed on wages up to this amount, typically at the 6.2 percent rate. In 2023, the maximum earnings will increase to $160,200, meaning more of a workers income will be subject to the tax. This adjustment is due to an increase in average wages in the U.S.
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How Will Work Affect Your Benefits
The lower the historical inflation-adjusted income, the more significant the value of continuing to work, both because the income replacement tier may be more favorable, and because there will typically be lower income years to replace. In the logical extreme, where a worker doesnt even have 35 years of historical earnings, additional working years will replace a $0 year in the AIME equation with the new years worth of earnings, giving the full benefit of the earnings at the current income replacement tier to be added into Social Security benefits!
On the other hand, if the historical earnings are already high enough that adding another income year doesnt replace any of the prior years, the impact of having another working year could be precisely $0 on future Social Security benefits! Or if historical AIME was already high, adding in a higher income year could have a very modest effect if the prior lowest year was already $80,000 .
Its also worth noting that since continuing to work increases the workers overall PIA, it increases not only his/her own benefit, but any other benefits paid based on that earnings record which means continued work can increase the retirement benefit, and a spousal benefit, dependent benefit, or a future survivor benefit as well.
Find Your Social Security Full Retirement Age
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. But first you have to know what it is.
Also known as normal retirement age, your Social Security Full Retirement age is the age at which youre entitled to 100% of the Social Security benefits youve earned. FRA is 66 for beneficiaries born between 1943 and 1954 it gradually increases to 67 for beneficiaries born in 1960 or later. If you take benefits before FRA, your benefits will be reduced. If you file at age 62, for example, benefits will be as much as 30% lower. More on that in a moment.
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Earning Too Much May Reduce Your Net Earnings Due To Taxation
Although you may boost your Social Security payout if you continue to earn at high levels, you may find that your net earnings actually decrease because your benefits have become taxable.
If you file taxes as an individual and your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. Above $34,000, as much as 85% of your Social Security benefits will be taxable.
For joint filers, the threshold for 85% taxation is $44,000, with amounts between $32,000 and $44,000 subject to taxes of up to 50%.
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Suspend Your Benefits If Possible
For those of you who are past the 12-month period where cancellation of benefits is allowed, theres one more option for increasing your check. As soon as you reach your full retirement age, youre allowed to voluntarily suspend benefits until as late as age 70.
Suspension of benefits means youll stop getting any benefits from Social Security temporarily. The big perk: your retirement benefits earn delayed retirement credits, adding 8% to your benefit for each year you delay past full retirement age.
Whenever you decide to resume benefits, just notify Social Security. You can do this anytime but be aware that the latest youll have to start receiving benefits is at age 70.
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Do Social Security Benefits Increase After Full Retirement Age
Asked by: Branson Gerhold
You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.