Do You Pay Taxes On Social Security
Some people who get Social Security must pay federal income taxes on their benefits. However, no one pays taxes on more than 85% percent of their Social Security benefits. You must pay taxes on your benefits if you file a federal tax return as an individual and your combined income exceeds $25,000.
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Yes You Can Receive Social Security Benefits While You Work
There are a few things to keep in mind as you decide whether to wait to receive Social Security benefits once you retire or earn them as you work.
For those inching closer to the retirement age, eventually collecting Social Security benefits is probably on the mind. You might be wondering whether or not you can start collecting Social Security benefits while you continue to work. The short answer is yes, with a few stipulations.
People who were born on or after Jan. 2, 1960, have a full retirement age of 67. If you work and are older than the retirement age, you can keep all your benefits with no reductions. People under 67 can collect benefits as they work, but their Social Security earnings will be significantly reduced.
The Social Security Administration stresses that, though your benefit amount may be reduced, it isn’t lost. “Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings,” the SSA writes in a guide.
To learn more about Social Security benefits, here’s a Social Security cheat sheet for 2022 and a guide to how your COLA increase will impact next year’s benefit amounts.
You Expect Your Investments To Grow Faster Than The Increased Benefit
If youre the next Warren Buffet, its possible you could do better taking Social Security early and investing the money than you could by waiting to take a larger benefit later. When weighing the best decision, consider the inflation rate, the rate your benefits increase and how much you can expect to earn in your portfolio. Given that benefits increase by 8% per year for each year you wait after full retirement age, however, its hard to outperform that rate of increase in the market. These safe investments do have high returns.
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Is It Better To Collect Social Security At 66 Or 70
As you undoubtedly already are well aware, most financial planners recommend thatso long as you can afford to do soyou should wait until age 70 to begin receiving your Social Security benefits. Your monthly payment in such an event will be 32% higher than if you begin receiving benefits at age 66.
Can A 62 Year Old Get Medicaid
Yes. Medicaid qualification is based on income, not age. While Medicaid eligibility differs from one state to another, it is typically available to people of lower incomes and resources including pregnant women, the disabled, the elderly and children.
Learn more about the difference between Medicare and Medicaid.
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Reasons You Should Claim Social Security Early
10 Reasons You Should Claim Social Security Early
Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can have a big impact on your planning. The earliest you can collect is age 62, but youll get more money if you delay your benefits past your initial Social Security eligibility. If you wait until after your full retirement age to start collecting Social Security you can earn delayed retirement credits, which will increase your benefits even more.
You might think that waiting for bigger benefits is better, but thats not always the case. There is no definitive answer to when you should collect Social Security benefits and taking them as soon as you hit the early retirement age of 62 might be the best financial move. Learn why you might want to start taking Social Security at 62.
How To Apply For Social Security
You can apply for Social Security benefits through the Social Security website, ssa.gov. You’ll find separate applications for each Social Security benefit, including retirement, spouse’s, disability and Medicare.
You also can call the Social Security Administration at 800-772-1213 or visit a local office. Scheduling an appointment before going into the office might be worthwhile to minimize the time you spend waiting. The busiest times are typically Mondays, the morning after a federal holiday and the first week of the month, according to the Social Security Administration.
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No More ‘file And Suspend’
Note that the claiming strategy called file and suspend, which allowed married couples who had reached their FRA to receive spousal benefits and delayed retirement credits at the same time, ended as of May 1, 2016. However, spouses born before Jan. 2, 1954, who have attained their FRA may still be able to file a restricted application. It allows them to claim spousal benefits while delaying their own benefits up to age 70.
Social Security benefits can be taxable if your combined income is high enough.
Watch Out For Hidden Costs
Youll also want to consider other lifestyle factors, especially Medicare. Americans become eligible for federal health insurance coverage at age 65, well after when you can begin to file for Social Security.
If you stop working at age 62 and lose health insurance, you have to get supplemental insurance to bridge the gap until you turn 65 and Medicare kicks in, Neiser says.
If you work during retirement, you have another incentive to delay collecting Social Security. Earning too much at a job after you begin collecting your benefit can reduce your payout, but only if you have yet to hit full retirement age.
However, when you hit full retirement age, your benefit will increase to account for any benefit that was withheld earlier due to working. Heres how much you can earn and not get hit.
If youre younger than full retirement age for all of 2022, the Social Security Administration will deduct $1 of your monthly check for every $2 you earn above $19,560 per year.
If you reach full retirement age in 2022, the administration deducts $1 of your monthly check for every $3 you earn above $51,960 until the month you reach retirement age.
Youll also owe Social Security and Medicare tax on your earnings, even if youre already receiving benefits.
So those are some potential pitfalls to claiming Social Security early.
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Why Waiting May Make Sense
Waiting until your FRA to apply for Social Security can increase the amount you receive in benefits each month. You will receive an 8% increase in your benefit payment for every year you delay receiving benefits. If you can put off receiving Social Security payments until age 70, that could add up to an almost 25% increase in the amount you receive each month.
Take some time to consider whether applying for Social Security benefits to begin at age 62 or at any age after that best helps you fund your retirement in the most practical way. The Social Security Administration can provide you with financial figures that will assist you in your decision-making process. Taking a hard look at the financial implications of retiring at various ages and at your personal situation will allow you to enjoy greater financial flexibility during your retirement years.
What Is Full Retirement Age
The size of your monthly Social Security benefit depends on several factors, including how much you earned over the years, the year you were born, and the age when you start claimingdown to the month.
Youll receive your full monthly benefit if you start claiming when you reach what Social Security considers your full retirement age , sometimes also referred to as normal retirement age. FRA was 65 when Social Security began, but it has been raised to 67 for anyone born in 1960 or later. To find your FRA, see the chart below.
|Finding Your Full Retirement Age|
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How Much Social Security Will I Get When I Turn 62
How Your Social Security Benefit Is ReducedIf you start getting benefits at age *And you are the: Wage Earner, the Retirement Benefit you will receive is reduced toAnd you are the: Spouse, the Retirement Benefit you will receive is reduced to6270.0%32.5%62 + 1 month70.432.762 + 2 months70.832.962 + 3 months71.333.158 more rows
Health Coverage In Retirement
Even if you start claiming Social Security retirement benefits at age 62, you wont be eligible for Medicare until you reach 65 years of age. Continuing to work can safeguard your health coverage. Without coverage through Medicare, a work plan, or your spouses health insurance, youll need to purchase an interim health policy and pay out-of-pocket until Medicare coverage kicks in at age 65.
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Should I Sign Up For Medical Insurance
With our online application, you can sign up for Medicare Part A and Part B. Because you must pay a premium for Part B coverage, you can turn it down.
If youre eligible at age 65, your Initial Enrollment Period begins three months before your 65th birthday, includes the month you turn age 65, and ends three months after that birthday.
Note: Important Upcoming Change Rules for 2023 and later: If you accept the automatic enrollment in Medicare Part B or if you sign up during the first three months of your IEP, your coverage will start the month youre first eligible. Beginning January 1, 2023, if you sign up during the month you turn 65 or during the last three months of your IEP, your coverage starts the first day of the month after you sign up.
The following chart shows when your Medicare Part B becomes effective in 2022:
|In 2022, if you sign up during this month of your IEP||Your Part B Medicare coverage starts|
|One to three months before you reach age 65||The month you turn age 65.|
|The month you reach age 65||One month after the month you turn age 65.|
|One month after you reach age 65||Two months after the month of enrollment.|
|Two or three months after you reach age 65||Three months after the month of enrollment.|
The following chart shows when your Medicare Part B becomes effective in 2023:
How Does My Longevity Figure Into This
This question underscores an important caveat accompanying Mr. Meyers projections, which assume a life span to 90: Not only may your mileage vary it certainly will. Financial advisers routinely illustrate outcomes assuming long life spans as a way to test the retirement plans they draw up.
Men who reach 65 have a 33 percent chance of living to 90, and women a 44 percent chance, according to the Society of Actuaries. And for married couples, theres a 63 percent chance that one spouse will live to at least 90. Yet a recent study by the society found that half of us wrongly estimate our life expectancy by five or more years, with 23 percent overestimating and 28 percent underestimating.
Those numbers illustrate the classic argument for Social Securitys value as insurance against outliving our financial resources. But the challenges of the pandemic economy may turn that argument on its head.
Sometimes an economic analysis points to what seems like a good decision for a large group of people, Mr. Cotton said. Economics can tell you whats best for an entire group of people but youre one person. Its something you need to decide on your own.
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What If Your Earnings Are Falling Short
If you’re earning enough to reach the maximum benefit amount, that’s fantastic. But the average worker will struggle to reach the income limits, and not everyone can afford to work 35 years before claiming.
The good news is that if you’re willing and able to delay benefits past age 62, you can earn closer to the maximum benefit amount.
Say, for example, you have an FRA of 67 years old, and by claiming at that age, you could receive $1,600 per month. If you were to claim early at 62, your benefits would be reduced by 30%, leaving you with $1,120 per month. But if you delay benefits until age 70, you’d receive your full benefit amount plus an extra 24%, or $1,984 per month.
Not everyone will be able to wait until age 70 to file for benefits. But if you’re unable to reach the maximum benefit amount, delaying Social Security is one of the best and easiest ways to boost your benefits.
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Should I File At Age 62 Age 70 Or Somewhere In Between
Whether you should choose to file for Social Security early or late is a constant debate. The problem lies in the uncertainty of the future.
If you know youre going to live a long and healthy life, claiming late may be the best answer, as youll have an elevated payout for decades. But if youre in poor health and you have a history of family medical problems, you may not live to see those increased payments, in which case filing early makes sense.
Some taxpayers simply want their money as fast as they can get it, or they dont believe in the long-term viability of the Social Security system, so they claim as early as possible. It pays to sit with your tax and financial advisors, and perhaps even your medical professionals, to help determine the best path for you.
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While You Can Start Collecting Benefits At Age 62 Should You Collect Early Or Delay
For many elderly people, Social Security benefits make up one of their primary sources of income in retirement. For half of seniors, Social Security comprises about half of their retirement income, according to the Center on Budget and Policy Priorities. Some studies estimate that without Social Security, between 30% and 40% of senior citizens would be considered below the poverty line.
The age at which you decide to collect your Social Security benefits has a big impact on how much youll earn from the program over time because the longer you wait, the higher your monthly payout will be.
Dont just call Social Security and apply at age 62. Everybody has options. A married couple could receive $1 to $1.5 million in benefits over their lifetime. And single people could maybe half of that, says Marc Kiner, a CPA at Premier Social Security Consulting. And do not assume that Social Security will review your options with you.
Select spoke to Kiner and Jim Blair, the lead consultant at Premier, about some of the factors you should consider when deciding when to apply for Social Security benefits.
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Your Health Is Excellent
Taking early benefits typically doesnt make sense when you have an above-average life expectancy. Social Securitys cost of living adjustments, or COLAs, have severely lagged behind the real-world living cost increases seniors face. Though soaring inflation pushed the 2023 Social Security COLA to 8.7%, in most years, its hovered around 1% or 2%. Starting with an already reduced benefit makes it tough to keep up.
If you expect to live into your 80s or 90s, waiting is often the best move. Every year you wait past 62, your checks will increase by 6.66% until full retirement age. After that, theyll increase by 8% until you hit the maximum benefit at age 70.
You Already Have Your 35 Highest
Your Social Security benefits are based on your earnings in the 35 years that you had the most compensation. If youre in your peak earning years, you could boost your benefits if you keep working a few more years and delaying your benefits. However, if you arent going to increase your average earnings, such as if youre only working part-time or youve had to retire early, you wont miss out on the chance to boost your benefits with higher earning years. However, youll still receive a smaller benefit for not waiting until full retirement age.
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Taking Social Security In The Pandemic: What To Know
Suddenly unemployed older workers who had hoped to delay filing have options that can boost their lifetime benefits.
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The trend has been moving in a positive direction: Over the past decade, far more workers who are eligible for Social Security have been waiting to file, often substantially increasing their lifetime annual benefits.
But the stunning job losses in the pandemic-induced economic crisis could bring this trend to a crashing halt, as suddenly unemployed older workers without substantial savings scramble to meet living expenses.
At a time when fewer retired households can rely on traditional pensions and only about half own retirement accounts, Social Security is the most important benefit for most Americans. Even in good times, there is no simple, one-size-fits-all answer when it comes to timing a claim your longevity, savings and any other pension income are important factors.
Now the decision is complicated by the highly uncertain outlook for the economy, jobs and financial markets. But even if you need Social Security income immediately, you may have options worth considering that can boost lifetime benefits.
Lets review the pros and cons of different strategies for claiming benefits during the coronavirus pandemic.