Social Security essentials
One of the most common mistakes individuals and couples make regarding Social Security is when they choose to start receiving benefits. Maximizing this benefit will go a long way in determining if you will enjoy an adequate and happy retirement.
When Should You Start Receiving Retirement Benefits?
- Before your full retirement age? As early as age 62
- At your full retirement age? Age 66-67
- After your full retirement age? As late as age 70
Why is it an Important Decision?
- When you claim benefits can significantly affect your overall retirement income
- If you’re married, timing can also affect spousal/survivor income
What Should You Consider?
- Your full retirement age and benefit calculation
- Amount of your future benefit and effect of early or delayed retirement
- How long you expect retirement to last based on life expectancy
- Whether you plan to continue working
- Other sources of retirement income
- Income taxes
- How your spouse might be affected
How Is Your Benefit Calculated?
As you approach retirement age, your highest 35 years of earnings are indexed, then averaged, and a formula is applied to determine your benefit at full retirement age.
How Much You’ll Receive:
Claiming Benefits Earlier
- Can start benefits as early as age 62
- Benefit reduction —you’ll receive 25% to 30% less at 62 than at full retirement age
- Benefits received for a longer period of time
Claiming Benefits Later
- You receive delayed retirement credits, up until age 70
- Benefit is increased 8% for each year you postpone receiving benefits past full retirement age
Monthly Benefit Comparison:
- Benefit at age 70 is 77% more than benefit at age 62
- But cumulative benefits from age 62 to 70 equal $134,400
Example:
| Age 62 | Age 63 | Age 64 | Age 65 | Age 66 | Age 67 | Age 68 | Age 69 | Age 70 |
|---|---|---|---|---|---|---|---|---|
| $1,400 | $1,500 | $1,600 | $1,733 | $1,867 | $2,000 | $2,160 | $2,320 | $2,480 |
How Working Can Affect Your Benefits:
Before Full Retirement Age
- $1 withheld for every $2 that earnings exceed annual limit of $22,320 in 2024
Year You Reach Full Retirement Age
- $1 withheld for every $3 that earnings exceed annual limit of $59,520 in 2024
At or After Full Retirement Age
- Earnings will not affect your benefit
Taxation and Your Social Security Retirement Benefits:
Will Your Benefit Be Taxable?*
Up to 50% of your benefit may be taxable if your combined income* is:
- $25,000 to $34,000 and you file as single
- $32,000 to $44,000 and you file as married filing jointly
Up to 85% of benefit may be taxable if your combined income* is:
- Over $34,000 and you file as single
- Over $44,000 and you file as married filing jointly
*combined income = adjusted gross income + nontaxable income + ½ of Social Security benefit
How Your Decision Affects Your Spouse and What is the Appropriate Combination of Claiming Ages:
- Retirement benefits are based on your earnings record —at full retirement age you’re entitled to receive 100% of your full retirement benefit
- Spousal benefits are based on your earnings record —as much as 50% of your full retirement benefit if your spouse claims at his or her full retirement age
- Reduction for filing for spousal benefits early - spouse can’t file until retired worker files
Survivor Benefits:
- Surviving spouse generally receives the greater of the retirement benefit the worker was receiving or his or her own benefit
- Survivor benefits may be payable as early as age 60 (may be subject to reduction)
The Power of Delaying Your Benefits:
Monthly Benefit Example
| Age 62 | Age 67 | Age 70 | |
|---|---|---|---|
| Spouse 1 | $1,680 | $2,400 | $2,976 |
| Spouse 2 | $1,397 | $1,996 | $2,475 |
| Total Joint Monthly Income | $3,077 | $4,396 | $5,541 |
- Monthly joint income is $2,374 more if both spouses claim benefits at age 70 instead of at age 62
- Monthly survivor benefit for Spouse 2 also increases