People approaching retirement age often have questions about benefits they may be eligible to receive from the Social Security Administration (SSA). Here are the answers to several common questions and often overlooked details.
How Soon Can I Start Collecting Retirement Benefits?
If you want to receive full retirement benefits from the SSA, you must wait until you reach the so-called full retirement age (FRA). But you may apply for benefits as early as age 62, but you will take about a 30% permanent pay cut!, Although, you'll receive benefits for more years. Your tax adviser can help figure out the exact monthly benefit reduction and help you determine if you likely will be better off waiting until your FRA to start taking benefits.
What Is My FRA?
Your FRA depends on the year in which you were born.
Year of Birth | Full Retirement Age |
1937 or earlier | 65 |
1938 | 65 and 2 months |
1939 | 65 and 4 months |
1940 | 65 and 6 months |
1941 | 65 and 8 months |
1942 | 65 and 10 months |
1943-1954 | 66 |
1955 | 66 and 2 months |
1956 | 66 and 4 months |
1957 | 66 and 6 months |
1958 | 66 and 8 months |
1959 | 66 and 10 months |
1960 | 67 |
If you were born on January 1 of any year, refer to the previous year. If you were born on the first of the month, the SSA figures your benefit (and your FRA) as if your birthday were in the previous month.
How and When Do I Apply for Social Security Retirement Benefits?
Apply for retirement benefits three months before you want your payments to start. The SSA may request certain documents in order to pay benefits, including:
For most retirees, the easiest way to apply for benefits is by using the online application.
What Happens if I Receive Social Security Retirement Benefits While Still Working?
If you're under FRA and earn more than the annual limit (subject to inflation indexing), your benefits will be reduced, as follows:
Beginning with the month in which you reach FRA, you can receive your benefits without regard to your earnings.
Can I Collect More Benefits if I Retire After My FRA?
You can receive increased monthly benefits by applying for Social Security after reaching FRA. The benefits may increase by as much as 32% if you wait until age 70, but of course you'll receive benefits for fewer years. After age 70, there is no further increase. Your tax adviser can help calculate the payout for waiting to collect your retirement benefits and help you determine if you likely will be better off waiting beyond your FRA to start taking benefits.
Can I Manage Retirement Benefits for an Incapacitated Person?
If a Social Security recipient needs help managing his or her retirement benefits — perhaps an elderly parent — contact your local Social Security office. You must apply to become that person's representative payee in order to assume responsibility for using the funds for the recipient's benefit.
Do I Qualify for Social Security Survivors Benefits?
A spouse and children of a deceased person may be eligible for benefits based on the deceased's earnings record as follows:
A widow or widower can receive benefits:
It is often overlooked, but a surviving ex-spouse might also be eligible for benefits under certain circumstances.
A one-time payment of $255 may be made only to a spouse or child if he or she meets certain requirements. Survivors must apply for this payment within two years of the date of death.
Are Social Security Benefits Subject to Income Tax?
You'll be taxed on Social Security benefits if your provisional income (PI) exceeds the thresholds within a two-tier system.
PI between $32,000 and $44,000 ($25,000 and $34,000 for single filers). Recipients in this range are taxed on the lesser of 1) one-half of their benefits or 2) 50% of the amount by which PI exceeds $32,000 ($25,000 for single filers).
PI above $44,000 ($34,000 for single filers). Recipients above this threshold are taxed on 85% of the amount by which PI exceeds $44,000 ($34,000 for single filers) plus the lesser of 1) the amount determined under the first tier or 2) $6,000 ($4,500 for single filers).
PI equals the sum of 1) your adjusted gross income, 2) your tax-exempt interest income, and 3) one-half of the Social Security benefits received.
Can Unpaid Student Debt Reduce My Benefits?
Many are unaware that if you still have federally guaranteed student debt when you begin receiving disability, dependents or survivors benefits, the SSA has the right to reduce the amount of your benefit until that student debt is paid. The size of the benefit reduction depends on the debt balance, but the average reduction is $150 per month.
If you have additional questions about receiving Social Security retirement benefits, contact your financial advisor. He or she can help you navigate the application process and understand tax issues related to receiving retirement benefits.
The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ¬purpose of ¬avoiding any ¬federal tax penalties. You are encouraged to seek advice from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ¬purchase or sale of any security. This material was written and prepared by Checkpoint Marketing.
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