LAST WEEK’S QUESTION: In a recent Insure.com survey, respondents listed what’s most important to them when moving to a new area. What consideration ranked number one? What it cost of living or weather?
ANSWER: Cost of Living.
HOST: So every month we talk about Social Security, because everyone wants to eventually collect their benefits….but what should we be concerned about if we are still working? How will our benefits be affected?
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, and when might be the best time that you should take it.
So, one question we will be focusing on today is IF you are planning on drawing your social security and continuing to work at the same time, how that will affect your social security benefit? But before we answer that, let’s begin with WHEN should you consider pulling your social security benefit?
Step One: 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, spousal income and then you can figure out the best time for YOU to begin taking your social security benefit.
Step Two: 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 www.ssa.gov and 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 thought 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.
- 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 receiving benefits early and for an extra 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.
Now: IF YOU do take your SS benefit BEFORE your full retirement age, AND you are still earning an income what happens with regards to your benefit?
- If you are retiring in 2021, and reaching your (FRA) full retirement age, take note the earnings limit is $50,520 before Social Security will deduct from your benefit. IF you go over this, Social Security 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 $18,960 per year in 2021 without your benefit being affected. If you earn more than the limit, one dollar in benefits will be withheld for every $2 in earnings above the limit.
HOST: What happens if you have already reached your Full Retirement Age and you still want to work?
KLAAS FINANCIAL: If you have already REACHED your FRA there is NO limit to your earnings and your SS benefit WILL NOT be affected and can actually grow as a result. However, you may still wish to consider waiting to take your benefit.
If you wait till age 70 to begin collecting your benefit, your benefit will grow as a result of DRC’s (Delayed Retirement Credits) The Social Security Administration designed delayed retirement credits to increase benefits for those who chose to wait beyond full retirement age before claiming their Social Security. In this case your benefit can increase up to 8% per year until you start taking benefits, or until you reach age 70.
Delayed credits stop accruing at age 70, whether or not you have filed or not. Therefore, there is almost NO reason to NOT pull once reach age 70 as your benefit will not increase.
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: Do I have to pay taxes on my Social Security Benefit?
KLAAS FINANCIAL: IF you go back almost 40 years ago, Social security was NOT taxable, but know that TODAY your social security is taxable under the following circumstances:
- file a federal tax return as an “individual” and your combined income* is.
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent of your benefits may be taxable.
- file a joint return, and you and your spouse have a combined income* that is
- between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $44,000, up to 85 percent of your benefits may be taxable.
HOST: If I am thinking about starting my benefit this year, how and when would I apply? Also, what is the earliest age I can receive benefits?
- The earliest you can apply for benefits is beginning at the age of 62, again this won’t be your highest possible benefit.
How to Apply:
- You can file for Retirement or Spousal Benefits online.
- In the past you could file in person but many of the Social Security offices are still closed due to COVID.
- You can call SS at 1-800-772-1213 with questions or contact your local Social Security office
When to Apply:
Social Security Retirement – You may apply 4 months before you turn age 62 or 3 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.
Also, if you are 65, you can apply for Medicare and Social Security at the same time on the Social Security Website.
Money in Motion Listener Question Corner
HOST: Judith wrote in the following question:
I’m turning 70 this year and about to start collecting Social Security even though I’m still working and intend to keep working for a couple more years. Since I’m past full retirement age, will I continue to pay Social Security taxes?
KLAAS FINANCIAL: First, congratulations on waiting until 70 to collect your Social Security benefits! By doing so, you maximized your monthly payout. We would hope more people would consider doing this. But yes, as long as you have earned income you are required to pay Social Security and other payroll taxes on up to the annual payroll limitation which in 2021, you will pay Social Security taxes on all of your income up to $142,800. The good news is because you’re past your full retirement age (FRA), there’s no benefit reduction based on income.