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.
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.
You Want To Retire Nowor Are Unwillingly Retired
Unless you have other forms of income, filing for Social Security is the only way youll survive without a steady job. If youre laid off or find your job too difficult to maintain, it may be sensible to retire and take your benefits early. Usually, that’s not a good idea, but it can be the only option for those struggling financially at an older age. If you have a choice, try to wait until your full retirement age, usually 66 or 67. Taking it before then will lower your monthly benefit.
Here’s an escape route worth knowing about, just in case: If you are lucky and suddenly secure a job or other income source within a year after you take early retirement, you have the option to pay back the benefits you got from Social Security and refile later when your benefits will be higher. The process is called a withdrawal and you get just one do-over opportunity.
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Report The Death Of A Social Security Or Medicare Beneficiary
You must report the death of a family member receiving Social Security or Medicare benefits. The Social Security Administration processes death reports for both. Find out how you can report a death and how to cancel benefit payments. In addition to canceling SSA and Medicare benefits, find out what other benefits and accounts you should cancel.
The Bleak Future Of Social Security
Aggravated by the COVID pandemic, the Social Security trust fund most Americans rely on for their retirement will run out of money in 12 years, one year sooner than expected, according to the annual Social Security 2021 Trustees Report published on August 31, 2021. The pandemic also threatens to shrink retirement payments and increase health-care costs for older Americans, according to the Trustees.
The Treasury Department oversees two Social Security funds: Old-Age and Survivors Insurance and Disability Insurance Trust Funds. These funds are intended to provide a source of income to former workers who have retired at the end of their careers or to those who cannot work due to a disability, respectively.
Social Security officials said that the Old-Age and Survivors trust fund is now able to pay scheduled benefits until 2033, one year earlier than reported last year. The Disability Insurance fund is estimated to be adequately funded through 2057, eight years earlier than in the report published in 2020.
In a press briefing, senior Biden administration officials said that a COVID-related spike in deaths among retirement-age Americans in 2020 helped keep the programs costs lower than projected. They also noted, however, that the long-term effects of the COVID pandemic on the Social Security trust funds is harder to project as costs and revenues return to their extended forecasts.
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Other Financial And Life Considerations
There are many other factors that might influence your decision to claim Social Security retirement benefits early. For example:
- Other sources of retirement income.
- How your income taxes may be affected by benefits.
- Personal considerations such as traveling, volunteering, returning to study, starting a business, pursuing a hobby, or moving your home.
- Dependent family members such as grandchildren or elderly parents.
SageVest Wealth Management understands that your wealth acquires new meaning as you approach and enter retirement. Our customized retirement planning includes a range of what if scenarios, to help ensure that your financial and life priorities remain aligned as you near and enjoy retirement. Please contact us for more information.
For more helpful articles on retirementand other financial topics, please visit our blog.
References
Prepared by SageVest Wealth Management. Copyright .
Standard Disclosure
In accordance with IRS CIRCULAR 230, we inform you that any U.S. Federal tax advice contained in this communication is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of avoiding penalties under the Internal Revenue Code or that may otherwise be imposed on the taxpayer by any government taxing authority or agency, or promoting, marketing or recommending to another party any transaction or matter addressed herein.
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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Lost Or Stolen Federal Payments
Report your lost, missing, or stolen federal check to the agency that issued the payment. It’s usually one of these paying agencies. If your documentation indicates it’s a different agency, and you need its contact information, look in the A-Z Index of U.S. Government Departments and Agencies.
To get an update on your claim, contact the Treasury Department Philadelphia Financial Center at 1-855-868-0151, option 1.
Get Ssa Benefits While Living Abroad
U.S. citizens can travel to or live in most, but not all, foreign countries and still receive their Social Security benefits. You can find out if you can receive benefits overseas by using the Social Security Administrations payment verification tool. Once you access the tool, pick the country you’re visiting or living in from the drop-down menu options.
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Theres A Social Security Spousal Benefit
Marriage is rewarded when it comes to Social Security. One spouse can take whats called a spousal benefit, worth up to 50% of the other spouses Social Security benefit. For example, if your monthly Social Security benefit is worth $2,000 but your spouses own benefit is only worth $500, your spouse can collect a spousal benefit worth $1,000 bringing in $500 more in income per month.
Just as the benefit based on your own work history is reduced if you claim it early, the same is true for a spousal benefit. That 50% figure is the maximum amount that only a spouse who is at least full retirement age is eligible for. Taking the spousal benefit early at, say, age 62, reduces the amount to as little as 32.5% of the higher earners benefit. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.
Your May Have To Pay Taxes On Social Security Benefits
Most people know that Social Security is funded by a tax on earnings, currently 6.2% for the employee . But some retirees dont realize that you may well have to pay income tax on Social Security benefits when it comes time to claim them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits havent been increased since then.
It doesnt take a lot of income for your Social Security benefits to be taxed. Your benefits wont be taxed if your provisional income is less than $25,000 if youre single or $32,000 if youre married. If youre single and your provisional income is between $25,000 and $34,000, or married filing jointly with provisional income between $32,000 and $44,000, up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return or $44,000 on a joint return, up to 85% of your benefits may be taxable.
The Social Security Administration says about 40% of beneficiaries pay taxes on their benefits. Since the thresholds arent adjusted for inflation, the number of beneficiaries who pay taxes on Social Security benefits increases every year. The Social Security Trustees annual report estimates that taxes on Social Security will total $45.1 billion in 2022, up from $34.5 billion in 2021.
You may also have to pay state income taxes on your Social Security benefits. See our list of the 12 States That Tax Social Security Benefits.
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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.
Retire Now Claim Later
You can always take early retirement and still wait to begin your Social Security benefits. That is a particularly important strategy for married couples who want to make sure the surviving spouse gets a larger benefit later in life.
The highest monthly benefit between you and your spouse is what will become the survivor benefit amount when one of you passesat that point, you’ll only get that higher benefit amount, not both amounts.
For the purpose of maximizing your future survivor benefit, you may want to plan for the higher earner between the two of you to delay the start of benefits to age 70 if possible. The lower earner, however, may want to start their benefits at an earlier age.
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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.
Doing A Breakeven Analysis And Other Ways To Decide How Soon To Start
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If youre about to retire, you may be wondering whether you should start claiming your hard-earned Social Security benefits now. Here are a few key factors to consider in making that decision.
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How To Receive Federal Benefits
To begin receiving your federal benefits, like Social Security or veterans benefits, you must sign up for electronic payments with direct deposit.
If You Have a Bank or Credit Union Account:
- Call the Go Direct Helpline at .
If You Don’t have a Bank or Credit Union Account:
- Direct Express debit card – a pre-paid debit card. Get help by calling the Go Direct Helpline at .
Make Changes to an Existing Direct Deposit Account:
On Go Direct’s FAQ page, learn how to make changes to an existing direct deposit account. You also may contact the federal agency that pays your benefit for help with your enrollment.
Can Early Retirement And Disability Benefit Be Exchanged
This is a very important question because it can make a big difference in the amount of money you receive each month. If Social Security pays you an Early Retirement benefit, you will have 30% less money than you are entitled to as a retiree. On the other hand, if you receive a Disability Benefit you will not have this type of reduction, since the rules are different.
That is why it is so important to be able to cancel the Early Retirement and apply for the Disability Benefit. If you have a disability and you are entitled to a benefit, you can cancel the previous one without any problem. In addition, Social Security may pay you retroactively if they determine that you have been disabled for some time.
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You’ll Be Penalized If You Work
Before you reach full retirement age, any money you earn from a job can affect your Social Security benefits. In 2022, for example, Social Security will deduct $1 from your benefits for each $2 you earn above $19,560. You will get the money back later after you reach full retirement age, but in the meantime, you’ll have that much less to spend.
What Are The Risks Of Early Retirement
Some risks are involved with early retirement. If the Social Security Administration decides you did not become disabled until after you began collecting early retirement, then the SSA will not pay the difference between early retirement pay and disability pay.
Also, if the SSA denies your disability claim, you will receive early retirement payments at that rate for the remainder of your life.
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Submit Using A Paper Application
To apply by paper, complete the Application for a Canada Pension Plan Retirement Pension form and mail it to us, or drop it off at a Service Canada office.
- If someone is helping you apply
You can give permission to a person to contact Service Canada on your behalf by signing in to your My Service Canada Account or by completing the Consent to Communicate Information to an Authorized Person form .
This form does not give the person helping you authority to:
- apply for benefits on your behalf
- change your payment address
You Can Undo A Social Security Benefits Claiming Decision
There arent many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Lets say you claimed your benefit, but now regret the decision and wish you had waited. During the first 12 months of claiming benefits, you can withdraw your application. You will have to repay all of the benefits youve received, along with any spousal benefits, but when you restart benefits, youll receive a larger amount, just as you would have if you had delayed filing in the first place.
If it has been more than 12 months since you filed for Social Security, you cant withdraw your application and restart benefits at a later date. But early retirees who have returned to the workforce are not totally out of luck: Once you reach full retirement age, you can suspend benefits until age 70. This will enable you to earn delayed-retirement credits of 8% a year . This can add up to tens of thousands of dollars for many people, says William Meyer, chief executive of Social Security Solutions.
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