Social Security Benefits

How Do Social Security Benefits Work During Retirement?

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Many people already know that Social Security Retirement Benefits is money that is received once you reach a certain age. But what age is the best age to take your benefits? How much will you receive? Can you still work? Many people do not truly have a grasp of all of the rules of social security.

Social Security is the retirement benefits that you can receive anytime after age 62. However, the longer you wait the more money you will receive if you take your benefits later. Most people wait until after they are full retirement age to take their benefits as there is a 25-35% increase, depending on what age you take the benefit. Your benefit amount depends on how much you have contributed to the system.

What is Full Retirement Age (FRA)

The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.

However, you can take your benefits early, at a reduced monthly amount. If you are in good health during your retirement, it is better to wait as long as possible to take your benefits if you want the maximum payout. At age 70 you will receive the highest amount allowed by Social Security vs. at age 62 when you will receive the least amount.

How Many Years Do I Have to Work to Get Social Security

Retirement benefits are earned by working and earning credits as you contribute to Social Security. The number of credits you need depends on your age and the type of benefits you are looking for. Anyone born in 1929 or later needs 10 years of work, which will equal 40 credits, to be eligible for retirement benefits. You earn Social Security credits when you work and pay into the system through your FICA payroll taxes.

Social Security bases your credits on your earnings. As an example, for 2020 you will receive one credit for each $1410 of earnings. You can earn up to 4 credits a year. You do not get additional credits if you earn more.

Everything you have contributed to Social Security over the years counts towards your eventual benefits. Each year the amount required to earn a credit goes up slightly so each year the earning requirement to earn your credits is different.

How Much Will I Receive in Social Security Benefits When I Retire?

How much you receive in social security benefits during retirement will depend on how much you paid into the program. You paid these benefits through the Federal Insurance Contributions Act (FICA) taxes that are withheld from your paycheck.

You can use the Social Security calculator to determine your benefits. The SSA offers several calculators to assist you in your retirement planning.

Your social security benefits are based on the years you work. They will take the highest 35 years of earnings. If you have less than 35 years where you worked they will calculate a 0 for the years you were not employed or contributing. As you continue to work you will eliminate those zero years and increase your benefit amount.

Social Security Benefits

Do I Have To Keep Paying Into Social Security Once I Retire?

As long as you are no longer working or earning wages you do not have to pay into Social Security. Once you take a job at any point they will start to collect FICA taxes again. But this can increase your benefit, so if you are looking for additional income this is a great way to increase your monthly benefits. All earned income will have to pay into the Social Security system.

Can I Still Work If I Am Receiving Social Security Retirement Benefits?

If you are still working and have earned income or wages, you will have to continue to pay into social security, even if you are collecting benefits and past full retirement age.

You will also want to be aware of benefit reductions if you are making too much money. If you’re younger than your full retirement age and earn more than certain amounts, depending on the year, your benefits will be reduced. The amount that your benefits are reduced, however, are not really lost. Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings.

If you continue to work past your full retirement age, you can continue to increase your benefits without a reduction.

How Work May Affect Your Benefits

If you were born January 2, 1958, through January 1, 1959, then your full
retirement age for retirement insurance benefits is 66 and 8 months. If you work and are full retirement age or older, you may keep all of your benefits, no matter how much you earn. If you’re younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. And if you’re younger than full retirement age during all of 2020, $1 will be deducted from your benefits for each $2 you earn above $18,240.

One important consequence to remember is this can also mean higher Medicare premiums and higher taxes. You want to make sure you look at all aspects of your financial situation when deciding to continue work after full retirement age.

Will My Spouses Pension or Income Affect My Social Security?

No. Your retirement benefit is based on individual earnings. However, if you are receiving spousal benefits your overall income could affect that amount.

  • If you and your spouse have similar incomes and ages, you may want to consider delaying your benefits, if you are in good health. This will increase the amount of your Social Security benefits.
  • Make sure if there is a significant difference in your income, look into claiming the spousal benefit. You may qualify for a higher payout.
  • If you have health concerns that may result in a shorter life expectancy, you will want to claim your benefits before full retirement age.

Are Social Security Benefits Taxable?

It is not that you have to pay taxes on your social security but if you are drawing an income in addition to Social Security you will be required to pay taxes.

You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:

  • File a federal tax return as an “individual” and your combined income is
    1. between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    2. 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
    1. between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
    2. more than $44,000, up to 85 percent of your benefits may be taxable.
  • File a married but separate tax return, you probably will pay taxes on your benefits.

You can pay quarterly or have the taxes taken from your benefits check directly.

What Happens to My Benefits When My Spouse Dies?

If your spouse has reached full retirement age, the surviving spouse is eligible to collect 100 percent of the late spouse’s benefits. However, if your benefits are higher than your spouses then Social Security will not pay any additional funds.

Here is the scenario:

Spouse 1 earns $1500 per month and passes away after full retirement age. Spouse 2 earns $800 per month and survived spouse 1 and is over the age of 60. Once spouse 1 passes, spouse 2 will now earn $1500 per month instead of $800 per month.

Keep in mind, that if your spouse took their benefits early and passed after they turned full retirement age you will only be eligible to collect the lower amount. As long as the surviving spouse is at least 60, you will most likely qualify for survivor benefits. You will have to have been married for at least 9 months.  

If you have remarried before the age of 60 then you will not be able to collect survivor benefits. If the marriage ends then you can become eligible for your previous spouse’s benefits.

How Do I Get Social Security If I Have Never Worked?

Even if you have not worked during your lifetime, you still may be eligible for Social Security Benefits. You can receive up to one half of your spouse’s benefits at age 62. However, if you wait until full retirement age then you will receive a higher amount.

When your spouse dies you will receive 100% of your spouse’s death benefit. This amount will be higher than your spouse’s benefit. But as with all Social Security, if you take any benefits before full retirement age, your benefits will be less than you would get from waiting.

What Is The Best Age To Start Taking My Benefits From Social Security

When it comes to Social Security Benefits it is always better to wait as long as possible to take your benefits but you will have to weigh out your personal situation. If you are in poor health, then you should take your benefits as soon as you are eligible. If you are in better health then waiting can add an additional 25-35% to your monthly payments.

Everyone is eligible to receive their benefits starting at age 62. Your full retirement age will depend on your birth year. The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. If you can wait until age 70 you will receive the highest amount available from Social Security.

Wrap up

Once you learn the rules surrounding your Social Security benefits, the system is pretty straight forward. The longer you wait to take your benefits, the more you will receive. I recommend using the calculators once a year to review where you stand as you approach retirement age. This way you will not have any surprises when you start your retirement.

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