SHOW NOTES: 2020-08-27 MiM

Last Week’s Question of the Week: According to the IRS, how much can an individual gift to another person in 2020 without federal gift tax consequences? Is it $5000 or $15,000?

ANSWER: $15,000 is the correct answer.

HOST: Today you are back to a favorite retirement topic which concerns working and collecting social security at the same time. Do I need to be careful of this? What do I need to know?

KLAAS FINANCIAL: Yes, so since there is so much to understand about social security and your benefits, we try to regularly break down the nuts and bolts of what your benefit may look like, and when might be the best time that you should take it.

Today what we will be focusing on is if you are planning on drawing your social security and continuing to work at the same time, and how that will affect your Social Security benefit. And, consequently the question really begins with… when should you consider pulling your Social Security benefit? So, lets focus on the when question first.

  • Step 1: Evaluate how much income your other investments and retirement accounts (IRAs, pensions, after tax accounts) may bring you on a yearly basis, and whether you will have any part-time working income and/or spousal income and then you can figure out the best time for you to begin taking your Social Security benefit.
  • Step 2: Determine when your FRA is. Remember that your Full Retirement Age represents when you are eligible to take your full benefit, at which time your working income will not affect your benefit.

Go to the website: It’s a wonderful resource for people regarding social security. You can set up a login to view your own account at any time. You will be able to find out what your FRA is here.

Here though is a quick reference: For anyone born between 1943-1954, your full retirement age (FRA) is age 66; for those born between 1955 and 1959, full retirement age is 66 plus some months. Born after 1960, it is age 67. Of course, you can choose to take your benefit as early as 62, but you need to remember that your benefit will be reduced. For example: If your full retirement age is 66 and you decide to start receiving retirement benefits at age 62, you will get 75% of the monthly benefit because you will be getting benefits for an additional 48 months. At age 65, you will get 93.3% of the monthly benefit because you will be getting benefits for an additional 12 months.

  • Step 3: Consider waiting to take your benefit. You can wait until age 70 to begin collecting your benefit. The Social Security Administration designed Delayed Retirement Credits, or DRC’s, to augment benefits for those who chose to wait beyond full retirement age before claiming their social security. When you delay your retirement past your full retirement age, Social Security benefits are increased a certain percentage (depending on your date of birth). Your benefit can increase up to 8% per year until you start taking benefits, or until you reach age 70. Therefore, almost no reason to not pull once you reach age 70. The net impact is that it is smart to wait if you want your monthly check to be as big as it can be.

HOST: So, if you do take your Social Security benefit before your full retirement age, and you are still earning an income what happens with regards to your benefit?

KLAAS FINANCIAL: Many people have heard there can be a limit to how much income you can earn when you are collecting social security without your benefit being affected. If you enroll to receive your Social Security benefit prior to your full retirement age and you’re still working, the Social Security Administration can withhold part, or all, of your benefits based on how much you earn per year.

If you are retiring in 2020, and you are turning your full retirement age, take note that the earnings limit in 2020 is $48,600 before social security will deduct from your benefit. If you go over this, they will deduct $1 for every $3 you earn until the month you reach full retirement age. They will only count the earnings before the month you reach your full retirement age.

If you are retiring this year, but it is before you have reached your FRA, you need to know that if you decide to work part-time that social security will only allow you to earn $18,240 per year in 2020 without your benefit being affected. If you earn more than the limit, $1 in benefits will be withheld for every $2 in earnings above the limit.

If you have already reached your FRA there is no limit to your earnings and your Social Security benefit will not be affected, and it can actually grow as a result.

Understand that your social security is taxable. If your income as a married couple is more than $44,000 as you collect your Social Security benefit (or $34,000 as an individual) understand that 85% of your Social Security benefits will be federally taxable.

HOST: If I am thinking about starting my benefit this year, how and when would I apply?

KLAAS FINANCIAL: How to apply: You can file for Retirement or Spousal Benefits online. In the past you could file in person but per the Social Security website we have read that all offices are currently closed due to COVID-19. You can call Social Security at 1-800-772-1213 with questions or contact your local Social Security office.

When to Apply: You may apply 3 months before you turn age 62 or 4 months before you want your benefits to start. 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. Generally, the day of the month you receive your benefit depends on the birth date of the person on whose record you are collecting.

HOST: Janet from our Money in Motion Listener Corner asks: “I started my Social Security benefit this year. If we experience inflation, will my Social Security benefit go up, or is it locked at the same benefit when I started drawing it?”

KLAAS FINANCIAL: Great question Janet! You are eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you don’t get benefits until your full retirement age or even age 70. In 2020 the COLA (Cost-of-Living-Adjustment) for social security went up by 1.6%. But this is a good reality check that we also need other investments to draw off of besides social security in retirement because 1-3% of an increase does not necessarily boost your living very much.

This Week’s Question of the Week: If you are not yet full retirement age in 2020, and you are drawing Social Security benefits, what is the income limit you can earn before your Social Security benefit will be affected? Is it $25,000 or $18,240?