Working May Affect Your Retirement Income Benefit
You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may affect the amount of benefit that you receive. Here’s how:
- If you’re under full retirement age: $1 in benefits will be deducted for every $2 in earnings you have above the annual limit
- In the year you reach full retirement age: $1 in benefits will be deducted for every $3 you earn over the annual limit until the month you reach full retirement age
Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit. And keep in mind that if some of your benefits are withheld prior to your full retirement age, you’ll generally receive a higher monthly benefit at full retirement age, because after retirement age the SSA recalculates your benefit every year and gives you credit for those withheld earnings
Three Things To Keep In Mind
For most people, Social Security benefits will represent a portion of their income during retirement yearsnot their sole source of income. It’s important to be aware of three important factors that will affect the amount of Social Security benefits you will eventually receive:
- When you choose to begin taking benefits
- Whether or not your benefits are taxed
- Whether or not you continue working
Your Retirement Age And When You Stop Working
Your retirement age is the age you begin receiving Social Security retirement benefits. For many people, this is not the same age youll stop working.
The age you stop working can affect the amount of your Social Security retirement benefits. We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.
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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.
An Example Of Taxed Benefits
Lets say you receive the maximum Social Security benefit for a worker retiring at FRA in 2021: $3,148 per month. Your spouse receives half as much, or $1,574 a month. Together, you receive $4,722 a month, or $56,664 per year. Half of that, or $28,332, counts toward your combined income for determining whether you have to pay tax on part of your Social Security benefits. Lets further assume that you dont have any nontaxable interest, wages, or other income except for your traditional individual retirement accounts required minimum distribution of $10,000 for the year.
Your combined income would be $38,332half of your Social Security income, plus your IRA distributionwhich would make up to 50% of your Social Security benefits taxable because youve exceeded the $32,000 threshold. Now, you may be thinking, 50% of $56,664 is $28,332, and Im in the 12% tax bracket, so the tax on my Social Security benefits will be $3,399.84.
Fortunately, the calculation takes other factors into account, and your tax would be a mere $225. You can read all about the taxation of Social Security benefits in Internal Revenue Service Publication 915.
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What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a âdelayed retirementâ credit for your own benefits . For example, say you were born in 1960, and your full retirement age is 67. If you start your benefits at age 69, you would receive a credit of 8% per year multiplied by two . This means your benefit would be 16% higher than the amount you would have received at age 67.
Social Security Benefits In The United States Are Lower Than In Many Other Developed Countries
Governments around the world are feeling fiscal pressure, and some have adopted austerity programs that trim retirement benefits. This has prompted some commentators to ask why the United States should be different. But that question ignores the fact that most other developed countries have more generous public pension systems than the United States.
The Organisation for Economic Co-operation and Development has tallied the percentage of past earnings that the public pension system replaces for various countries. By that measure, the United States ranks in the bottom third among major developed nations. The average OECD nation has a public pension program that replaces half of earnings for an average worker the U.S. system replaces about 40 percent of earnings.
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Your Social Security Money Is Based On Your Income
The amount of money you make during your career plays an important role in determining how much money you’ll receive from Social Security. If you work a total of 45 years, only the highest 35 years of earnings would count toward your benefit amount. For example: If you earned $35,000 for the first 10 years of your employment history and $55,000 for 35 years, only the $55,000 income would count .
Here’s more information on how your Social Security benefits are calculated.
You’ll Get More Money If You Wait To Cash In On Your Social Security
You likely know that if you wait until full retirement age to collect your Social Security benefits, you’ll receive 100% of your benefits. But if you decide to wait until age 70 to retire, you’ll get even more money.
Your benefits will increase by a percentage for each month you delay receiving your benefits past full retirement age up to age 70. If you were born in 1960 or later and wait to start receiving Social Security benefits until age 70, you’ll get 124% of your benefits.
You can get more money if you wait to retire.
Paying Taxes On Your Retirement Benefits
Social Security retirement benefit recipients must pay Federal income taxes on their benefits. Due to personal income levels, about one-third of recipients actually have to pay some amount annually.
Each year, the Social Security Administration will mail recipients a Form SSA-1099 that shows the amount of benefits received during the preceding year. This form should be used to complete tax returns and help determine in any taxes are owed.
As a general rule, if you file as an individual and your combined income is between $25,000 and $34,000, you may have to pay taxes on up to 50 percent of your Social Security benefits. If your combined income is more than $34,000 you may be required to pay taxes on up to 85 percent of your benefits.
If you file a joint return and you and your spouses income is between $32,000 and $44,000, then 50 percent of your benefits may be taxed. If your combined income is about $44,000, then up to 85 percent of your benefits may be subject to income tax.
To assist with tax planning, Social Security can withhold Federal taxes throughout the year for benefit recipients which may be preferable to making quarterly estimated tax payments.
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Will Full Retirement Age Change Again
Though the last legislative change to full retirement age was in 1983, Carroll warns that a future increase in full retirement age is a likely component of a comprehensive Social Security reform package. The culprit for this likely change is our increasing longevity.
More people are living long enough to claim Social Security than in the past, and theyre then spending more years receiving benefits. This makes the program significantly more expensive today than when it was founded, Carroll says. To keep Social Security solvent and provide the same level of benefits, the bar to receive Social Security either needs to rise, taxes have to increase or both.
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Most Beneficiaries Rely On Social Security For Most Of Their Income
Social Security is the foundation of retirement income. Of course, most beneficiaries have other income as well from pensions, investments, a job, and from means-tested programs such as Supplemental Security Income . Social Security provides the majority of income to most elderly Americans. For about half of seniors, it provides at least 50 percent of their income, and for about 1 in 4 seniors, it provides at least 90 percent of income, across multiple surveys and a recent Census Bureau study that matches survey and administrative data.
Most retirees have modest incomes, save for some at the top of the income spectrum. About 1 in 4 retiree households live on less than $20,000, while the wealthiest tenth of senior households had incomes of $230,000, on average.
The median elderly household had income of about $44,000 in 2012, including Social Security. That figure masks a sharp difference between white and Asian households, which had median incomes of about $47,000 and $48,000, respectively, and Black and Latino households, which had median incomes of about $32,000 and $30,000, respectively.
Proposals to means-test Social Security by trimming benefits for retirees with other income wouldnt save significant money unless they targeted retirees who are not affluent such measures would also pose high administrative costs and would damage incentives to work and save.
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
People with disabilities
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 the 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
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This Happens 36 Months Before Full Retirement Age
Each month before you reach full retirement age, your benefits will be reduced. In the 36 months before full retirement age, youll lose 5/9 of 1% of your benefits each month. Any time prior to the 36 months before full retirement age, youll lose 5/12 of 1%.
Once you reach full retirement age, your benefits will increase monthly by 2/3 of 1%, up to age 70.
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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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.
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.
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What You Need To Know About The New Social Security Benefit Increase
For the 70 million Americans who receive Social Security, experts say the significant increase in benefits slated for 2023 is much-anticipated and much-welcomed.
Social Security recipients, most of whom are over age 65, have seen their payments increase almost every year for more than four decades to keep up with the cost of inflation. When inflation is low as its been over the past decade or so those cost-of-living adjustments, or COLAs, have been fairly mild. But last year, the increase was big, and this year its even bigger.
To help cover the rising cost of food, housing, health care and other essentials, the Social Security Administration announced Thursday that beneficiaries would receive an 8.7-percent increase in their monthly payments. In a sign that the Federal Reserves efforts have not yet worked to puncture the elevated inflation rate, the Bureau of Labor Statistics also released its consumer price index for September on Thursday, showing prices rose 8.2 percent over the last year.
The 8.7 percent cost-of-living increase to Social Security payments for 2023 will be the largest jump in more than 40 years. Graphic by Jenna Cohen and Megan McGrew.
The COLA for 2023 is the largest increase since 1981 when inflation was even higher than it is today and is the fourth-largest jump ever.
When Can I Start Collecting Social Security
The minimum age to claim benefits is 62. If you are turning 62 and need the income from Social Security to support yourself, you can start claiming your benefits now. However, if you have enough other income to keep you going until you are older, you may want to delay increasing the size of your monthly benefit.
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Working After Beginning Benefits May Temporarily Reduce Them
If you file for Social Security benefits before your full retirement age but keep working, the Social Security Administration will temporarily reduce your benefit payments. For 2022, the amount of the reduction is $1 for each $2 you earn above $19,560.
If you reach full retirement age in 2022, the reduction drops to $1 for every $3 you earn above $51,960, until the month you reach full retirement age. Thereafter, there is no reduction no matter how much you earn.
Bear in mind that these reductions are only temporary. Once you reach full retirement age, your monthly benefit will be adjusted upwards to compensate you for the original reductions.
Getting The Maximum Amount Because Of A Current Or Former Spouse’s Work
If youre eligible because of a spouses work, the amount is at its highest at your Full Retirement Age” . It doesnt increase if you wait and apply after that time. If your spouse has passed away, you may be eligible for Survivor benefits starting at age 60, or at age 50 if you are disabled.