Stephen J. Dybwad | Highly Individualized Financial Guidance
Social Security Retirement Benefits: Know Your Options
You need to understand your benefits and options
To qualify for Social Security benefits when you retire, you must be:
• Fully insured. To be fully insured, a worker must have earned 40 Social Security credits by working ten years in covered employment where the earnings were subject to Social Security tax (OASDI) and the Medicare (HI) tax. If the work was less than ten years, an alternative test could determine a fully insured status.
• At least age 62.
Primary Insurance Amount (PIA)
Social Security benefits generally depend on a worker’s lifetime earnings. The Social Security Administration uses this earnings record to calculate the PIA and determine the payable benefit's dollar amount.
When to take Social Security Retirement benefits
Deciding when to take Social Security benefits is an important life decision and one about which you can’t change your mind. Plus, the initial benefit will be your “base” amount for the rest of your life. The cost of living increase is the only event that can cause an adjustment to the amount.
The key to making the decision a little easier is to think about two events separately—when you want to retire, and when you want to begin receiving Social Security benefits — also, understanding how benefits are calculated, taxed, and what happens if you continue working after you start receiving Social Security.
For a long time, the National Retirement Age (NRA) was set at age 65 to receive the full benefits or 100% of a person’s Primary Insurance Amount (PIA), calculated by the Social Security Administration based on the lifetime earnings record. For those born in 1938 or later, the NRA gradually increases until age 67 for those born in 1960 or later.
For reduced benefits: retire early. The earliest age you can begin receiving Social Security is at age 62. But the benefits paid will be reduced to reflect that you’ll be paid over a longer period. For each month—up to 36 months—that a worker is under NRA, benefits are reduced by 5/9 of 1% of the PIA.
For bigger benefits: retire later. If you can wait, you can get paid a more significant retirement benefit. For each year beyond your NRA, and depending on your year of birth until you reach age 70, your benefit increases by a specified percentage of the PIA. No additional credit is given if you wait to retire past age 70.
Retirement Benefits for Family Members
Other members of your family may receive retirement benefits based on your account:
• Your spouse: When they turn 62, your spouse is eligible for a retirement benefit based on your earnings record. Your spouse’s benefit is typically 50% of your PIA at their NRA. Unless your spouse is caring for a child, the benefit is reduced if they begin receiving benefits before their NRA. If your spouse worked and is entitled to a larger benefit than yours, they receive the larger benefit.
• Your child: If your dependent child is under age 18, or age 18 or 19 and a full-time elementary or high school student, or 18 and over and disabled before age 22, and unmarried, then they are eligible for a retirement benefit. Your child’s benefit is 50% of your PIA.
• Your ex-spouse: If you were married for at least ten years and then divorced, your ex-spouse, who is not married, may be entitled to your retirement benefits when they are 62. Typically, the retirement benefit is 50% of your PIA.
Maximum Family Benefit
When the total benefits of the Social Security benefits account exceed certain limits (these change each year), the dollar amounts, for all beneficiaries, are proportionately reduced to meet the family's maximum limit. Neither the worker’s benefit amount nor any benefit payable to a divorced spouse is diminished because of the family's maximum limit.
Social Security Benefit Federal Income Tax
Social Security benefits may be subject to income tax. When half of the Social Security benefit and the modified adjusted gross income exceeds a specified limit, a portion, up to 85%, of that benefit is taxable. For married couples filing joint, the limit is $44,000; for most others, it’s $28,000. For those married couples filing separately and who lived with their spouse at any time during the year, the limit is $0. State or local income taxes on Social Security benefits vary.
Reduced Benefits Based on Excess Earnings
If you begin getting Social Security benefits and continue to work, your benefit will be reduced temporarily if your earnings exceed certain limits. In this case, earnings include employment wages or self-employment net income. The amount reduced varies:
• Under NRA: $1 of benefits is lost for every $2 earned over $14,160 yearly or $3,150 monthly.
• The year you reach NRA: $1 of benefits is lost for 3 dollars earned over $37,680 per year or $3,140 a month.
• At NRA: Once NRA is reached, individuals’ benefit is not reduced, no matter how much is earned. Any benefits withheld earlier because of excess earnings will be credited to the individual’s account, resulting in a larger retirement at NRA.
• Special rule for the first year of retirement: If just before retiring, you earned more than the annual limit, you’ll be paid unreduced Social Security benefits for any month after benefits begin that you do not earn more than the monthly exempt wage amount.
Verify Social Security Records
The SSA sends annual statements to every worker, age 25 and over. This statement includes your earnings record and the estimated benefits amounts. Because the Social Security benefits are based on your lifetime earnings history, it is essential to check your SSA records’ accuracy.
You can also check your records by completing Form SSA-7004, “Request for Social Security State.” The completed form can be mailed to the Social Security Administration, P.O. Box 7004, Wilkes-Barre, PA 18767-7004.
Social Security Retirement Benefits Calculators
The SSA’s Web site offers a calculator to help you estimate your retirement benefits using your own earnings history taken directly from Social Security records. www.ssa.gov/planners/
Call for more information: Social Security Administration: 1.800.772-1213; TTY: 800. 325.0778; or www.ssa.gov/
Disclaimer: The above information is believed to be accurate. Limits and benefits can change; make sure you ask questions of a professional who is licensed and authorized. Be careful.
Stephen J. Dybwad | Highly Individualized Financial Guidance
Cincinnati, OH, Louisville, KY, Indianapolis and Madison, IN,
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