Your Earnings Record Affects Your Social Security Payout
The Social Security Administration only uses your top 35 earnings years to calculate your retirement benefits. As you approach retirement, it’s a great opportunity to maximize your earnings and replace lower-earning years with higher-earning ones in your Social Security work record.
As the years right before retirement are often your peak earning years, it’s a great time to raise your future payout. If you haven’t yet worked for 35 years, this is your chance to put in enough years so that your Social Security earnings record is full.
Your Monthly Social Security Benefits Increase The Longer You Wait To Claim
While you can collect Social Security benefits as soon as you turn 62, taking benefits before your full retirement age will spell a permanent reduction in your payments of as much as 25% to 30%, depending on what your full retirement age is.
If you wait until you hit full retirement age to claim Social Security benefits, youll receive 100% of your earned benefits. But you can do even better by waiting to claim your Social Security benefits at age 70 your monthly Social Security benefit will grow by 8% a year until then. Any cost-of-living adjustments will be included, too, so you dont forgo those by waiting. Think of that time as bonus earning years and remember that youd be hard pressed to find those sorts of gains for zero risk during that period anywhere else.
Waiting to claim your Social Security benefits can help your heirs as well. By waiting to take her benefit, a high-earning wife, for example, can ensure that her low-earning husband will receive a much higher survivor benefit in the event she dies before him. That extra income of up to 32% could make a big difference.
Social Security Is Not Enough For Retirement
Even if Social Security gets a huge makeover from Congress, workers should not consider the program a sufficient retirement plan. Even now, Social Security barely covers living expenses for recipients.
According to the Social Security Administration, Social Security benefit payments to 65 million recipients totaled $1.14 trillion in 2021. This might seem like a lot, but break down those numbers: in 2021, retirees received $1,555 per month, on average, and disabled workers $1,280 per month. That’s not far above the official poverty line, which was roughly $1,132 a month for a single person in 2022.
If you are planning to retire in the next decade, it is important to use the time you have left wisely. Boost your retirement savings as much as possible while paying down debt and keeping spending low. Social Security payments alone will not cover a typical mortgage or living expenses when you are saddled with debt.
Don’t Miss: Bill To Increase Social Security Benefits
Can I Receive Social Security Disability And Retirement Benefits
In most cases, you cannot receive Social Security disability and retirement benefits at the same time, since SSDI benefits are meant for those who cannot work due to injury or illness. If youre receiving retirement benefits, it is already implicit that you are no longer working. There is one exception to this rule, however.
If you take an early retirement at age 62 before applying for disability benefits, and are later found to have been eligible for disability during that time, the Social Security Administration will make up the difference between your early retirement benefits and your monthly disability benefits for those months that you received early retirement payments. Of course, youll have to submit adequate documentation that you took an early retirement because of your disabling condition.
Its also worth noting that some individuals can draw monthly benefits from more than one Social Security program. For example, you may be able to qualify for both SSI and SSDI or retirement and SSI.
Costs Of The Solution
Two issues that are likely to arise in any discussion of fixing this problem are its cost to the Social Security trust fund and its cost to the federal budget. With regard to the cost to the Social Security trust fund, there are three ways to look at the issue.
One way is to view the cost relative to costs in a world in which no pandemic had occurred. For example, the cost could be measured using the economic assumptions in the most recent Social Security trustees report , which were formulated before the pandemic began. From this perspective, the cost would be zero because the legislative change would restore the world of Social Security benefits to what it would have looked like had there been no pandemic.
A second way of looking at the issue is to view the cost of the change relative to costs in a world that reflected economic assumptions indicative of the economic recession caused by the pandemic. From this viewpoint, there would be a cost associated with fixing the problem. For example, the chief actuary of the SSA estimates that if the AWI in 2020 were to fall 5.9 percent below its 2019 level, the AWI adjustments proposed by Chairman Larson would cost $90 billion in present-value dollars for the 75-year period from 2020 through 2094about 0.02 percent of taxable payroll over that period. . The cost over the 10-year period from 2020 to 2029 would be about $21 billion in nominal dollars.
Read Also: Aarp Medicare Supplement Plan K Benefits
Land A Job Suspend Your Benefits
Let’s say you file for Social Security and start receiving benefitsand then are you are hired for a new job a few months later. What should you do? If you have reached full retirement age, you can actually suspend your benefits and claim them later . This will allow you to earn a higher benefit when you do start receiving payments again.
Can Your Pia Change After You Reach Age 62
There are two things that affect your PIA after you reach age 62:
You may get the wrong answer when running your own calculations on when to begin Social Security if you simply take the numbers off your statement and do not properly apply inflation adjustments.
Also Check: Tax Benefit On Personal Loan
Working While Retired Can Temporarily Reduce Your Benefits
If you’re planning on boosting your Social Security payments by working during retirement, it might actually have the opposite effect — at least temporarily. Specifically, the SSA will dock your Social Security payments by $1 for every $2 you earn above an annual threshold while you are younger than full retirement age. For 2022, this earnings limit is $19,560.
In the year you reach full retirement age, that formula changes to a $1 reduction for every $3 you earn above a different limit, which is $51,960 for 2022. Once you reach full retirement age, however, not only can you earn as much as you’d like without penalty, your previously withheld payments will also be added back into your checks.
Exceptions To The Wep & Gpo
The WEP and GPO may not apply in some cases, meaning that some workers who receive pensions can also receive their full Social Security benefits. The rules are complicated, and we’ll provide a few general exceptions here, including how you may be able to avoid the GPO by paying Social Security taxes near the end of your career. Get in touch with the SSA or a financial advisor if you have questions.
Don’t Miss: Apply For Social Security Retirement Benefits
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
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.
Avoiding The Gpo: The 60
If you’re a retired government employee who receives Social Security retirement benefits as a spouse or former spouse, you can avoid the GPO reduction.How? By working for at least the last 60 months of your career in a job in which you pay Social Security taxes.Take the case of Julie. For most of her career, she worked as a public school teacher. Because the school district offered her a pension at retirement, Social Security taxes were never withheld from Julie’s pay.Her husband, Bruce, works in the private sector and has paid Social Security taxes for the duration of his career. When they retire, both will claim Social Security benefits on Bruce’s earnings record.To avoid the GPO reduction to her spousal benefits, Julie retires early from her teaching position and takes a job at a tutoring center. She works in that position for 5½ years, and Social Security taxes are regularly withheld from her pay.The tutoring position is the last job Julie holds. Because she spent her last working 60 months paying Social Security taxes, the GPO won’t reduce her spousal benefits.
Recommended Reading: Usps Retirement Benefits For Employees
How Do You Apply For Social Security Benefits
If you are eligible for Social Security benefits, you can apply online, by phone or by appointment at a local Social Security office.
How to Apply for Social Security Benefits
- Online
- Applying online is the easiest way to apply for Social Security benefits. The Social Security website allows you to apply for retirement, spouses, Medicare and disability benefits at the same site. You can also apply for Supplemental Security Income benefits.
- Phone
- If you dont have Internet access, you can sign up by phone. You can call the Social Security Administration at 1-800-772-1213 .
- In-person
- The Social Security Administration has restrictions on office visits during the COVID-19 pandemic. It does allow in-person visits for certain services. You should check with the SSAs Coronavirus page to see if you can make an in-person appointment at your local office.
Never Miss Important News or Updatesfree
How Does The Social Security Administration Calculate Benefits
Benefits also depend on how much money youâve earned in life. The Social Security Administration takes your highest-earning 35 years of covered wages and averages them, indexing for inflation. They give you a big fat âzeroâ for each year you donât have earnings, so people who worked for fewer than 35 years may see lower benefits.
The Social Security Administration also makes annual Cost of Living Adjustments, even as you collect benefits. That means the retirement income you collect from Social Security has built-in protection against inflation. For many people, Social Security is the only form of retirement income they have that is directly linked to inflation. Itâs a big perk that doesnât get a lot of attention.
Don’t Miss: Tax Benefits Of Being Self Employed
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.
Social Security Benefits For Workers Turning 60 In 2020 Will Very Likely Drop Due To The Coronavirus Pandemic
Congress could pass legislation that would prevent this outcome.
As a result of the COVID-19 pandemic, about 3 million retired workers who turn 60 years old in 2020 will very likely have much lower lifetime Social Security benefits than previously expected. Without legislative changes, the average earner stands to lose nearly $1,500 per year for the rest of their life. Fortunately, there is a simple legislative changeexplored in detail belowthat would fix these problems without lowering the benefits of any other cohort of retirees. Chairman of the U.S. House Ways and Means Social Security Subcommittee, Rep. John Larson , has introduced such legislation*and Congress should fix this situation as soon as possible.
Also Check: What Is The Max Social Security Benefit
Congress Must Act Sooner Rather Than Later
In theory, the AWI problem could be fixed anytime before 2022, when, for example, workers who turn 60 this year are first eligible to retire at the age of 62. But that delay would cause significant anxiety for these workers, whose future benefits would be at risk. Moreover, people decide when to retire based on projections of their incomes in their initial year of retirement and in the remainder of their lives. It would be most unfair to workers decision-making processes to have the expectations of their future incomes be uncertain for some period of time while they are trying to make such an important decision.
Congress needs to act sooner rather than later to ameliorate this problem. One possibility would be to include a fix in the stimulus legislation to cope with the economic effects of the COVID-19 pandemic that Congress is currently considering.
Timing And Your Health Coverage
Your health insurance coverage can also play a role in deciding when to claim Social Security benefits. Do you have a health savings account to which you would like to keep contributing? If so, note that if youre age 65 or older, then receiving Social Security benefits requires you to sign up for Medicare Part A, and once you sign up for Medicare Part A, youll no longer be allowed to add funds to your HSA.
The SSA also cautions that even if you delay receiving Social Security benefits until after age 65, you might still need to apply for Medicare benefits within three months of turning 65 to avoid paying higher premiums for life for Medicare Part B and Part D.
In 2022, the average monthly premium for Part D will be $33 per month versus $31.47 in 2021. If you enroll in a Medicare Advantage plan, the average monthly premium will be $19 per month in 2022 versus $21.22 in 2021. However, if you are still receiving health insurance from your or your spouses employer, you might not yet have to enroll in Medicare.
As of Dec. 26, 2021, Social Security offices are only open by appointment, and to get an appointment you need to be in a limited, critical situation. Most people will have to transact their business online, by phone, or through the mail.
You May Like: How To Claim Retirement Benefits
How To Calculate Social Security Benefits In Excel
If you are in your late 50s and approaching retirement, you can create a useful model of your future benefits. It works best to do this in a Microsoft Excel spreadsheet, as follows:
- Using a recent Social Security statement, list in spreadsheet column A your taxable Social Security earnings year by year.
- List in column B the most recently published NAWI adjustment factors as published by the SSA.
- Multiply columns A and B and output the result to column C.
- Identify in column D the 35 highest values in column C. Add these together and divide the sum by 420 . This will approximate your AIME.
- Use the most recently published bend points to convert your AIME into a PIA.
You also can fill in hypothetical values for estimated taxable Social Security earnings in future years until you plan to stop working. To be conservative, use a NAWI adjustment factor of 1.0000 in column B for all future years.
A financial advisor who fully understands this process can help verify your calculations, advise you on when to start Social Security benefits, and estimate the future benefits you can expect to receive.
What Happens To My Disability Benefits When I Reach Retirement Age
Once you successfully get approved for disability benefits, your monthly benefits should stay the same unless your disability improves, you start engaging in Substantial Gainful Employment , or you have a spouse whose income surpasses SSDI threshold levels. You can even continue to work part-time on disability or try out other options like a trial work period to see if youre able to fully transition back into the workforce.
Making the switch from receiving disability payments to retirement benefits is simplebecause for most beneficiaries, their monthly benefit stays exactly the same. This is because the SSA calculates your SSDI benefits as though you have already reached full retirement age, which is equal to 100% of your maximum benefit based on your lifetime earnings.
Don’t Miss: International Society Of Certified Employee Benefit Specialists
When To File For Ss Retirement Benefits
When to file for ss retirement benefits? You can apply up to four months before you want your retirement benefits to start. For example, if you turn 62 on December 2, you can start your benefits as early as December. If you want your benefits to start in December, you can apply in August.
How long does it take to get first Social Security check after applying? Once you have applied, it could take up to three months to receive your first benefit payment. Social Security benefits are paid monthly, starting in the month after the birthday at which you attain full retirement age .
Do I need to notify Social Security when I turn 65? If youre not already getting benefits, you should contact Social Security about three months before your 65th birthday to sign up for Medicare. You should sign up for Medicare even if you dont plan to retire at age 65.
Do you get a full month Social Security on the month of your birthday? Social Security benefits are not prorated. They start the month following the birthday. The schedule, according to AARP, follows this rule: When the birth date falls between the 1st and 10th of the month, the payment is issued on the second Wednesday of the month following the birthday month.