Social Security benefits represent on average a third of retirees’ income.1 Nearly 90% of Americans 65 and older receive some type of Social Security benefits. About half of married couples and 71% of unmarried people on Social Security rely on the benefits for at least 50% of their incomes. Nearly a quarter of married couples and about 43% of unmarried people rely on Social Security for at least 90% of their income. There are important factors you NEED to know regarding Social Security and your retirement. Here are the first two:
Your benefit amount depends on your retirement age
Your benefit amount varies depending on when you apply for benefits. You may file to claim benefits before your full retirement age. The earliest you can claim is at 62; the latest you can claim is 70.2 If you claim prior to reaching your full retirement age, the SSA reduces your benefit amount by a percentage for each month prior to your full retirement age. For example, if you were born in 1960 and retire at 62 (2022), you’ll get 70% of your monthly benefits.3 If you retire at 65, you’ll get 86.7%.
Full retirement age varies. The full retirement age is 66 years and 2 months for those born in 1955. The age gradually increases to 67 for people born in 1960 and later.4 If retirees take benefits prior to their full retirement age, their benefits will be permanently reduced. The full retirement age is when recipients will be able to receive their full benefits (or 100% of their calculated benefits).
Following legislative changes in 1983, the full retirement age, which was 65, began rising by two months starting for people born in 1938.5 However, benefits will increase by 8% per year for those who decide to delay collecting Social Security beyond their full retirement age. Recipients who wait until they’re 70 to collect benefits will receive 24% higher payments.
Both choices (retiring early at 62 or delaying until the age of 70) have advantages and disadvantages.5 The SSA calculates individual benefits so that recipients receive approximately the same total amount over the course of their retirement.7
You may work and collect Social Security benefits
The SSA acquires information from you, such as bank account and routing numbers, during the initial application process. You’re required to provide the SSA with outside earning estimates for the upcoming year.
The SSA obtains your outside earnings from the W-2 forms your employer files or your self-employment income on tax returns to verify your income and gauge your benefit amounts. Social Security benefits are based on the projected income levels you report at the beginning of the year. The SSA will inform you if your benefits will have to be adjusted based on outside earnings.8 The SSA sets outside earning limits for recipients who receive benefits.9 When you exceed those limits, the SSA reduces your Social Security benefits. The limit on outside earnings for 2021 is $18,960.
The SSA deducts $1 in benefits for every $2 above the outside income limit if you’re working and collecting Social Security prior to your full retirement age. In the year you reach full retirement age, the SSA subtracts $1 in benefits for every $3 you earn above $50,520. However, that deduction only applies in the months of that year prior to the month you reach full retirement age.
In the month you reach your full retirement age, the SSA no longer restricts your outside earnings. This year’s $50,520 outside income limit is an increase from 2020’s $48,600.
If you need help planning for your Social Security benefits, call our office at 320.222.4236.
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