Effect Of Delaying Retirement Benefits
1Represents Full Retirement Age based on DOB January 2, 1960
2PIA = The primary insurance amount is the basis for benefits that are paid to an individual
That higher baseline would last for the rest of your retirement and serve as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesâit’s not always possible to wait, particularly if you are in poor health or can’t afford to delayâthe benefits of waiting can be significant.
Be aware that if you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you don’t sign up at age 65. If you start Social Security benefits early, you’ll automatically be enrolled into Medicare Parts A and B when you turn age 65.
Your annual Social Security statement will list your projected benefits between age 62 to 70, assuming you continue to work and earn about the same amount through those ages. If you need a copy of your annual statement, you can request one or view it online on the Social Security Administration portal.
Fact #: Social Security Is More Than Just A Retirement Program It Also Provides Important Life Insurance And Disability Insurance Protection
Over 65 million people, or more than 1 in every 6 U.S. residents, collected Social Security benefits in January 2022. While older adults make up about 4 in 5 beneficiaries, another one-fifth of beneficiaries received Social Security Disability Insurance or were young survivors of deceased workers.
In addition to Social Securitys retirement benefits, workers earn life insurance and SSDI protection by making Social Security payroll tax contributions:
- About 96 percent of people aged 20-49 who worked in jobs covered by Social Security in 2020 have earned life insurance protection through Social Security.
- For a young worker with average earnings, a spouse, and two children, thats equivalent to a life insurance policy with a face value of nearly $800,000 in 2020, according to Social Securitys actuaries.
- About 89 percent of people aged 21-64 who worked in covered employment in 2020 are insured through Social Security in case of severe disability.
The risk of disability or premature death is greater than many people realize. Some 7 percent of recent entrants to the labor force will die before reaching the full retirement age, and many more will become disabled.
How Do You Become Eligible For Social Security Benefits
To be eligible for Social Security benefits in retirement, you must earn at least 40 “credits” throughout your career. You can earn up to four credits each year, so it takes 10 years of work to qualify for Social Security.
In 2022, you must earn $1,510 to get one Social Security work credit and $6,040 to get the maximum four credits for the year. And yes, that means that it is possible to have money withheld for Social Security and never get it back. The minimum is the minimum.
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The Effect Of Earnings On Medicare
Getting back into the work force may bring another surprise: Premiums for Medicare Parts B and D could increase if you earn significantly more money.
Premiums for Part B, which covers doctors visits and outpatient services, are deducted from your Social Security payments Part D covers prescription drugs. Most Medicare enrollees pay what is called the standard premium for Part B in 2023, that amount will be $164.90 a month, a decrease from $170.10 in 2022. The Part D premium for 2023 will be $31.50, a slight decrease from 2022.
For those who pay more than the standard premium, Medicare has a complicated means-testing process to determine their outlay.
If you earn income above a certain level, you may be subject to the Medicare IRMAA, or income-related monthly adjustment amount a surcharge on your Part B and Part D premiums. You will know if youre over the limit when you get a notice from the Social Security Administration, but you can still plan ahead.
The income thresholds for Medicare premium upcharges are on a sliding scale. If you are single and your annual adjusted gross income was more than $91,000 and under $114,000, your monthly Part B premium is $238.10 this year Part D is $12.40. The top end of the IRMAA scale for those filing jointly and earning above $750,000 is $578.30 a month for Part B and $77.90 for Part D.
Medicare will also look at income bump-ups that come from a variety of sources, such as the sale of a business or investment profits.
How Delaying Can Help
Your retirement may stretch out far longer than you think.
A 65-year-old male today, in average health, has a 54% probability of living to age 85, according to The Society of Actuaries . For a 65-year-old woman, the likelihood of reaching 85 is 65%. And one in three 65-year-old men in average health has a chance of living to 90. Nearly half of women age 65 in average health, will probably make it to 90.
That means your retirement savings need to last a long time and Social Security can help with that.
Lets say you turn 62 in 2022, your full retirement age is 67, and your monthly benefit starting at full retirement age is $1,000. If you start getting benefits at age 62, the Social Security Administration reduces your monthly benefit 30% to $700 to account for the longer time you receive benefits. This decrease is usually permanent.
If you choose to delay getting benefits until age 70, you earn delayed retirement credits, which comes to roughly an 8% per year annual increase for each year between your full retirement age until you hit 70 when the credits stop accruing. That would increase your monthly benefit to $1,240.
The benefit at age 70 in this example is about 77% more than the benefit you would receive each month if you start getting benefits at age 62 a difference of $540 each month.
For instance, Social Security benefits will increase 8.7% next year as part of the annual cost-of-living adjustment for 2023.
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A Guide On Taking Social Security
Deciding when to take Social Security depends heavily on your circumstances. You can start taking it as early as age 62 , or you can wait until you’ve reached full retirement age or age 70 based on your work history. While there’s no “correct” claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement. Here are some guidelines to consider.
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.
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Eligible Family Members Include:
- Ex-spouses, if the marriage lasted for at least 10 years and they have not remarried
- Children under 18, or up to 19 if still enrolled in high school
- Children of any age who were disabled before 22 — that is, not earning more than $1,260 per month in 2020, having a medical condition that results in severe functional limitations and that is expected to last 12 months or longer or result in death
Spouses and ex-spouses must be at least 62 in order to claim benefits, and spouses and children must wait for the worker to begin claiming benefits themselves before they can claim family benefits on their record.
What Else Affects Your Retirement Benefits
Everyones retirement is unique. Beyond deciding when to begin receiving retirement benefits, other factors that can affect your benefits include whether you continue to work, what type of job you had, and if you have a pension from certain jobs.
Continuing To Work
You can choose to keep working beyond your full retirement age. If you do, you can increase your future Social Security benefits. Each extra year you work adds another year of earnings to your Social Security record. Higher lifetime earnings can mean higher benefits when you choose to receive benefits.
Specific Types Of Earnings
While Social Security earnings are calculated the same way for most American workers, there are some types of earnings that have additional rules.
Earning types with special rules include:
Pensions And Other Factors
Pensions and taxes have the potential to impact your retirement benefit. Review the resources below on pensions and other factors you should consider:
- Windfall Elimination Provision : If you have a pension from a job for which you didnt pay Social Security taxes, this policy may lower your retirement benefits.
- Government Pension Offset : This policy affects benefits as a spouse, widow, or widower if you have a pension from a government job for which you didnt pay Social Security taxes.
- Income Taxes And Your Social Security Benefits: You might have to pay federal income taxes on your Social Security benefits in certain situations.
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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:
Retirement Income Benefits For Qualified Family Members
Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you’re receiving retirement benefits, the members of your family who may be eligible for family benefits include:
- Your spouse age 62 or older, if married at least one year
- Your former spouse age 62 or older, if you were married at least 10 years
- Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
- Your children under age 18, if unmarried
- Your children under age 19, if full-time students or disabled
- Your children older than 18, if severely disabled
Your eligible family members will receive a monthly benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.
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How Do I Collect Survivor Benefits
Survivor benefits are Social Security payments to family members of a wage earner who has died. Unlike spousal benefits, the size of the survivor benefits you leave behind changes depending on when you opt to collect your individual benefits. As a result, if you take your individual benefits early, youre locking in lower lifetime income not only for yourself, but also for your spouse should you die before him or her. If you delay receiving benefits to earn a higher PIA, that amount is eligible to pass on to your surviving spouse.
As a spouse, you may be entitled to survivor benefits if youve been married for at least nine months at the time of your spouse’s death. You can collect survivor benefits as young as age 62, but if you do, those benefits will be reduced. Children and parents may also be eligible for survivor benefits, but only under specific circumstances.
Survivor benefits would replace benefits youre already receiving if the survivor benefits are of higher value. Additionally, if you receive a pension based on work without paying into Social Security, your survivor benefit may be reduced accordingly.
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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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.
What Are Social Security Benefits
Social Security benefits are payments made to qualified retired adults and people with disabilities, and to their spouses, children, and survivors. Social Securityofficially the Old-Age, Survivors, and Disability Insurance program in the U.S.is a comprehensive federal benefits program designed to provide partial replacement income for retired adults and their spouses, those whose spouse or qualifying ex-spouse has died, and people with disabilities. Under specified conditions, it also supports the children of beneficiaries.
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Theres An Annual Social Security Cost
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is significant. Its the equivalent of buying inflation protection on a private annuity, which can get expensive.
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 2023, Social Security beneficiaries will likely see a 9.7% COLA in their monthly Social Security benefits, the biggest increase since 1981. The COLA for 2023 will be announced on October 13.
Heres what COLAs have been in other recent years:
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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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, let’s 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%.