Benefits May Be Taxable
You will have to pay taxes on your benefits if you file a federal tax return as an individual and your total income is more than $25,000. If you file a joint return and you and your spouse make more than $32,000 jointly, you will have to pay taxes on your benefits. For more information, call the Internal Revenue Service at 800-829-3676.
Working After Full Retirement Age Faq
Retirees may work while collecting Social Security benefits, but those younger than their FRA will be subject to the retirement earnings test .
Under this test, if your earnings exceed a certain limit , you will temporarily forfeit some or all of your benefits. Once you reach full retirement age, your benefit is recalculated and you may receive most of that money back.
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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What Is Full Retirement Age
For Social Security purposes, your full or normal retirement age is between age 65 and 67, depending on the year you were born. If, for example, your full retirement age is 67, you can start taking benefits as early as age 62, but your benefit will permanently be 30% less than if you wait until age 67.
If you can manage without receiving your Social Security benefits at full retirement age, you can wait until age 70. That will give you the maximum benefit each month.
There’s no advantage to waiting past age 70 to start collecting benefits.
How Does Working After Full Retirement Age Affect My Benefits
Continuing to work past your full retirement age, whether or not you take benefits, can potentially increase your future benefits. Thats because the Social Security administration calculates your primary insurance amount based upon your 35 highest-earning years and uses zeros for the calculation if you have worked fewer than 35 years.
Working longer replaces each of those zeroes, or even lower earning years if you have no zeros, which boosts your PIA. Its also important to note that lower-earning years after retirement will not affect your benefits since Social Security uses whichever 35 years are your highest earning.
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Should You Collect Social Security Early
As you can see from the table above, if you wait and collect Social Security at age 66 in 2022, you will get 100% of the benefits you are eligible for.
However, if you start collecting at the earliest age of 62, your benefits will be permanently reduced between 20-25% depending on when you were born.
Also, if you wait until 67, youll get 108 percent of the monthly benefit because you delayed getting benefits for 12 months.
Additionally, if you wait until age 70, youll get 132 percent of the monthly benefit because you delayed getting benefits for 48 months.
Working Can Mean Lower Benefits Until You Reach Full Retirement Age
You can collect Social Security benefits if you continue to work and earn an income. But if you make more than a certain amount from your work and haven’t reached your full retirement age, your benefit will temporarily be smaller. Here’s a rundown of how earned income can reduce your Social Security benefits.
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Tip No : Factor In Your Work Plans
You dont have to stop working once you reach full retirement age if youre receiving full Social Security benefits, you can earn as much as you want without any impact.
Thats not the case if you continue working and take Social Security before you reach full retirement age. Then the earnings test comes into play: Some or all Social Security benefits can be withheld depending both on how much you earn and how old you are. If your earnings test withholding exceeds your full Social Security benefit, the entire benefit will be withheld until you turn the full retirement age. Find an earnings test calculator at ssa.gov.
Whats Your Social Security Break
If youre looking to maximize your total lifetime Social Security payout, youll want to conduct a break-even analysis to determine when you should start drawing your benefits.
Your break-even age occurs when the total value of higher benefits starts to exceed the total value of lower benefits .
For example, if you are eligible to collect a reduced $900 benefit at age 62 plus 1 month, and your benefit would increase to $1,251 at age 65 and 10 months, your estimated break-even age is 75 years and 5 months.
If you expect to live beyond that age, it could make financial sense to delay drawing benefits. The Social Security Administrations life expectancy calculator can help you decide.
When it comes to calculating a start date for Social Security benefits, however, theres not an age thats appropriate for everyone. Consider your own financial needs, health and other retirement plans before making the call. If you cant reasonably afford to live without taking benefits, it may make little sense to delay taking your benefit.
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Tip No : Determine If Youre Eligible For Divorce Or Widow Benefits
If you meet certain conditions, you may also be able to claim divorce benefits:
- Divorced at least two years
- Benefits youd be entitled to receive on your own are less than the benefits youd receive based on your former spouses work.
Your spousal benefits dont decrease if your former spouse has multiple divorces, and youre eligible whether or not theyve claimed their own benefits. There is, however, a maximum amount you can receive based on your former spouses record50% of what they would get at their full retirement ageand that decreases if you file before you reach your own full retirement age. Finally, if a former spouse claims benefits on your Social Security record, your own benefits are not decreased.
Widow benefits are structured a little differently. The surviving spouse is eligible for the full benefit when they reach full retirement age, or a reduced benefit at age 60. If the surviving spouse is disabled, they may receive benefits as early as age 50. The benefit amount depends on both age and the amount the deceased spouse was entitled to at the time of death.
A widowed, divorced spouse may collect benefits if the marriage lasted 10+ years, but not if they remarried before age 60. And a widowed, divorced spouse cannot receive both spousal and widow benefitsits one or the other.
Social Security Income Limits
The Social Security Administration reported in October 2021 that the estimated average monthly retirement benefit will be $1,827. While that regular monthly income helps, it’s usually not enough to cover living expenses. That’s one reason many people are working longer.
If you work, the money you bring home can affect your Social Security benefitsâbut the specifics depend on your age and how much you earn. Remember that, although your full retirement age might be 67, you can start receiving benefits at 62, even if you’re still working.
But here’s the catch: For the 2023 tax year, if you start benefits before full retirement age, you can only earn up to $21,240 and still get your full benefits. Once you earn more than the limit, Social Security deducts $1 from your benefits for every $2 you earn.
In the year you reach full retirement age, Social Security becomes more forgiving. If you earn more than $56,520 in 2023 it deducts $1 for every $3 you earnâbut only during the months before you reach full retirement age. Once you reach full retirement age, you can earn any amount of money, and it won’t reduce your monthly benefits.
Note, however, that any money deducted from your benefit is not permanently lost. After you reach full retirement age, Social Security will recalculate your benefit and increase it to account for the benefits that it withheld earlier.
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How Much Of Social Security Is Counted As Income
You must declare at least 50 percent of your Social Security benefits, and you may have to pay income taxes on them. If your income exceeds $ 44,000 and you are married and applying jointly, 85 percent of your benefits may be taxable.
How much of Social Security benefits are taxable income?
For a combined income of $ 25,000 to $ 34,000, up to 50 percent of Social Security benefits may be subject to normal income taxes. For income over $ 34,000, up to 85% of the benefits can be taxed. For jointly married filing, the first $ 32,000 is not taxed.
Is Social Security income considered earned income?
For the year in which the return is filed, earned income includes all employee income, but only if it is computable in gross income. The earned income does not include amounts such as pensions and annuities, social benefits, unemployment benefits, work benefits or social security benefits.
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 |
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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.
Tip No : Consider The Overall State Of Social Security
Youve probably read news stories about the Social Security Trust Fund being exhausted around 2035 . Its true that the combination of more retiring baby boomers coupled with a declining birth rate means that fewer workers are contributing to a system with more retirees. Does that mean Social Security would go away? No one knows. Benefits may decrease, for example, or contributions could increase. In addition, even if the Social Security Trust Fund is depleted, there would still be employees working and contributing some portion of the Social Security needs of current retirees.
Retirement income planning is a delicate balancing act. How will you fund your retirement budget with what you know are guaranteed sources of incomea defined benefit plan, annuities, or work incomealong with other sources such as an IRA, 401 or 403, or Roth IRA? And how does the guaranteed level of Social Security benefits youll be entitled to at that future date fit in? Our free Retirement Wellness Planner can help you estimate .
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Spouses And Social Security
You can claim Social Security benefits based on your spouse’s work record. If claiming spousal benefits provides more, claiming before your FRA on a spouse’s record means you’ll lose even more than claiming on your own recordthe benefit reduction for a spouse is 35% while the reduction for claiming your own benefit is 30%. For instance, if you’re the spouse of Colleen in the above example and you are the same age, you’d be eligible for only $650 a month at age 6235% less than the $1000 a month you would get at your FRA of 67.
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Your decision to take benefits early could outlive you. If you were to die before your spouse, they would be eligible to receive your monthly amount as a survivor benefitif it’s higher than their own amount. But if you take your benefits early, say at age 62 versus waiting until age 70, your spouse’s survivor Social Security benefit could be 30% less for the remainder of their lifetime.
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When Should You Start Collecting Social Security Benefits
To determine when you should start taking your benefits, its important to understand how much your check is affected by when you claim your benefit. As mentioned before, you can claim your benefit as early as age 62 but reaching full retirement age can secure your full benefit.
So when exactly is the full retirement age for Social Security? That depends on when you were born.
| Year of birth | |
|---|---|
| 65 + 2 months for each year past 1937 | |
| 1943-1954 | |
| 66 + 2 months for each year past 1954 | |
| 1960 and later | 67 |
While the full retirement age used to be 65, changes to the program have increased that age. For example, those born in 1955 now have to wait an extra two months beyond age 66 to claim their full benefit. Someone born in 1959, for example, would have to wait until age 66 and 10 months to get the full benefit. Anyone born in 1960 or later, receives their full benefit at 67.
But some retirees choose to wait even longer. You may wait until as late as age 70 to claim your benefit, but then you must take it. Youll receive a bigger check for doing so.
So, what is the upside to delaying your Social Security benefit after age 62? Your check wont get hit by a serious benefit reduction. Heres how much a $1,000 monthly check will become if you claim your benefit as soon as youre eligible at age 62.
| Year of birth | If you file at 62, benefit reduced by: | A $1,000 check becomes |
|---|---|---|
| $700 |
The Downside Of Claiming Early: Reduced Benefits
Consider the following hypothetical example. Colleen is 62 as of 2022. If Colleen waits until age 67 to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, she’ll receive only $1,400 a month. This “early retirement” penalty is permanent and results in her receiving 30% less year after year.
However, if Colleen waits until age 70, her monthly benefits will increase another 24% over what she would receive at her FRA, to a total of $2,480 per month.1 If she were to live to age 89, her lifetime benefits would be about $112,000 more, or at least 24% greater, because she waited until age 70 to collect Social Security benefits.2
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How Social Security Helps Pay For Medicare
In addition to automatically enrolling you in Medicare, if you are receiving Social Security or Railroad Retirement Board benefits, your Medicare Part B premium will be automatically deducted from your monthly benefit payment.
If you are not receiving Social Security or Railroad Retirement Board benefits yet, you will get a bill called a Notice of Medicare Premium Payment Due . Bills can be paid for by check or money order, a credit or debit card, or through online bill pay services.
In conclusion, as youre starting to think about Medicare and retirement, do some research and make sure you understand how your Social Security benefits can or will play a role.
Footnotes
Working Outside Of The United States
If you retire and work outside the United States, the rules are different. If you are younger than full retirement age, Social Security will reduce your benefits for every month you work more than 45 hours in a job that’s not subject to U.S. Social Security taxes. That applies regardless of how much money you earn. These rules can get complicated, so you’ll want to contact Social Security for advice on your particular situation.
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