What Are Social Security Benefits Based On

There Are Social Security Survivor Benefits For Spouses And Children

If your spouse dies before you, you can take a Social Security survivor benefit. However, that wont be in addition to your own benefit. You must choose one or the other. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of his or her death .

A widow or widower can start taking a survivor benefit at age 60. However, the payment will be reduced because its taken before full retirement age. Theres a twist available assuming the survivor has benefits of their own available and hasnt already filed for them: Take the survivor benefits as early as possible, which is age 60, and switch to your own retirement benefits at age 70. Your survivor benefits will be reduced because you will have filed for them before your full retirement age, but your own benefits will grow, garnering delayed-retirement increases, until age 70. Online programs such as the one offered by Social Security Solutions can help you compare the cumulative benefits for each strategy to determine which one provides the highest payout.

Remarriage has implications here. If you remarry before age 60, you are not eligible for a survivor benefit. If you remarry after age 60, you may be eligible for a survivor benefit based on your former spouses earnings.

Eligible children who are under age 18 or were disabled before age 22 can also receive a Social Security survivor benefit. It would be worth up to 75% of the deceased’s benefit.

Avoid The Social Security Tax

Social Security benefits may be subject to federal income tax. How much goes to Uncle Sam depends on a somewhat complicated formula.

To determine what percentage of your benefits are taxable, the Social Security Administration looks at your combined incomeâalso known as your provisional income. This is your adjusted gross income plus non-taxable interest, like what you earn on municipal bonds or income-producing assets in your Roth accounts, and half of Social Security benefit income.

Unfortunately, itâs likely that you will have to pay some taxes on your benefits. âThe only way to avoid paying federal income taxes on your Social Security benefits is to have a combined income below $25,000 ,â says Brotman. âBetween $25,000 and $34,000, half of your Social Security becomes subject to federal income tax, and above $34,000 up to 85% of your Social Security income is taxable.â

Brotman advises that you should just plan as if you will owe taxes on up to 85% of your Social Security benefits.

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.

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How Do Benefits Work And How Can I Qualify

While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:

• Those who are currently retired
• To people with disabilities
• To the surviving spouses and children of workers who have died

Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.

There are four main types of benefits that the SSA offers:

• Learn about earning limits if you plan to work while receiving Social Security benefits

Is Social Security Based On How Much You Paid In

Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or indexed to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most.

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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%.

Checklist For Your Social Security Claiming Strategy

• Know your numbers. Find out your FRA, earnings history, and estimated benefits.
• Stay current. Sign up for your most current statements on SSA.gov.
• Do the math. Use calculators on SSA.gov to check out your monthly benefit options.
• Get the facts. Don’t succumb to myths use primary resources such as SSA.gov.

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Earn Ssa Work Credits In Some Countries

You may not have enough credits from your work in the United States to qualify for retirement benefits. But, you may be able to count your work credits from another country. The SSA has agreements with 24 countries. If you earned credits in one of those countries, they can help you qualify for U.S. benefits.

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.

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Factors That Affect How Much You’ll Get In Retirement

Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. Gordon is a Chartered Market Technician . He is also a member of CMT Association.

Most retirees rely on Social Security. One in four gets 90% of their retirement income from the program. About half rely on it for 50% of their income.

Although Social Security is only one part of a secure retirement plan, it’s helpful to get a rough idea of how much you can expect. If you’re eligible for Social Security, your monthly benefit is based on two factors:

• How much money you earned during your working career
• The age you choose to start getting payments

Let’s look at how each of these affects your future Social Security income.

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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Average The Highest 35 Years

The Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. In the table below, the highest 35 years are listed in Column G.

Total the highest 35 years of indexed earnings, and divide that amount by 420, which is the number of months in a 35-year work history, to find the Average Indexed Monthly Earnings.

For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. Divide by 420 to get an AIME of $4,569.

Before You Make Your Decision

There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:

• If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
• That there are other things to consider when making the decision about when to begin receiving your retirement benefits.

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What Happens If You Work Less Than 35 Years For Social Security

If you claim benefits with fewer than 35 years of earnings, Social Security credits you with no income for each year up to 35. For example, if you worked for 30 years, there will be five zeroes in your benefit calculation. … If you file before reaching full retirement age, your benefit is reduced whether you work or not.

When A Spouse Dies

When one spouse dies, the surviving spouse is entitled to receive the higher of their own benefit or their deceased spouses benefit. Thats why financial planners often advise the higher-earning spouse to delay claiming. If the higher-earning spouse dies first, then the surviving, lower-earning spouse will receive a larger Social Security check for life.

When the surviving spouse hasnt reached their FRA, they will be entitled to prorated amounts starting at age 60. Once at their FRA, the surviving spouse is entitled to 100% of the deceased spouses benefit or their own benefit, whichever is higher.

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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.

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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.

What Income Is Social Security Benefits Based On

Asked by: Petra Mayert

Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or indexed to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most.

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What Is The Future Of Social Security

As of June 2022, the Social Security Trust Fund is projected to have enough resources to cover all promised benefits until 2035 when, absent a change from Congress, benefits would need to be cut for all current and future beneficiaries to about 80% of scheduled benefits.2 Over the longer term, changes to the full retirement age or means testingâwhich could reduce or eliminate benefits based on your other income sourcesâmay also be considered.

If you’re skeptical about the future of Social Security or wary of potential changes, you may be tempted to start benefits early, assuming that it’s better to have something than nothing. Regardless of your situation, if you are concerned about the future prospects for Social Security, then that’s a good reason to save moreâand earlierâfor your retirement.

The Recalculation Of Social Security Benefits

Since a recalculation of benefits is the least common method the SSA will use, lets quickly cover that. Then well move on to the much more common recomputation of benefits.

A recalculation is only performed to correct a benefit that was calculated with incorrect or missing earnings . For example, if there were earnings included in your initial benefits computation that was found to be incorrect, your benefit would be recalculated. And again, remember that a recalculation can increase OR decrease your benefit.

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The Social Security Office Of Retirement Policys Program Explainer: Windfall Elimination Provision

BACKGROUND: The Windfall Elimination Provision is a formula used to adjust Social Security worker benefits for people who receive non-covered pensions and qualify for Social Security benefits based on other Social Security-covered earnings. A non-covered pension is a pension paid by an employer that does not withhold Social Security taxes from your salary, typically, state and local governments or non-U.S. employers.

HOW THE WEP WORKS: Social Security benefits are calculated by applying three different percentages to a person’s lifetime average indexed monthly earnings and adding them up to obtain the worker’s monthly benefit ) at full retirement age.

The SSA website provides answers to frequently asked questions, such as:

• How do I apply for a new or replacement Social Security number card?
• How do I change or correct my name on my Social Security number card?
• How can I get a Social Security Statement that shows a record of my earnings and an estimate of my future benefits?
• How can I change my address?
• How do I schedule, reschedule, or cancel an appointment?
• How long will it take to get a Social Security card?
• What is the eligibility for Social Security spouses benefits and my own retirement benefits?
• How do I get a replacement Medicare card?
• What happens if I work and get Social Security retirement benefits?
• What is a my Social Security online account and how do I get one?

What Is A Good Monthly Retirement Income

Median retirement income for seniors is around $24,000 however, average income can be much higher. On average, seniors earn between $2000 and $6000 per month. Older retirees tend to earn less than younger retirees. It’s recommended that you save enough to replace 70% of your pre-retirement monthly income.

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To Wait Or Not To Wait

Consider taking benefits earlier if . . .

• You are no longer working and can’t make ends meet without your benefits.
• You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
• You are the lower-earning spouse, and your higher-earning spouse can wait to file for a higher benefit.

Consider waiting to take benefits if . . .

• You are still working and make enough to impact the taxability of your benefits.
• Either you or your spouse are in good health and expect to exceed average life expectancy.
• You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.