In 1935, the government created Social Security to promote the economic security of Americans. It aims to provide individuals over the age of 62 with continuing income after retirement. Social Security benefits are typically computed using “average indexed monthly earnings”, which is the average sum of a worker’s indexed earnings over up to 35 years.
If you collect benefits, or plan to soon, it’s important to understand how the things you do or don’t do can affect your Social Security benefits.
Claiming Early
Social Security is extremely strict when it comes to age and benefits.
In order to receive 100% of your Social Security benefits, you must claim after the full retirement age of 67. If you claim at 66 years and 11 months old, you will only receive 99.4% of your benefits.
As the story goes: the earlier you claim, the less benefits you will receive. However, the earliest you can claim is 62, which will only give you 70% of your full payment for life.
Continuing to Earn Income
Another downside of claiming too early is that you can receive even less money if you are still earning money.
In 2023, if you claimed early, you could earn up to $21,240 without seeing your benefits reduced. After that, the SSA will withhold $1 for every $2 you earn above the threshold.
Once you reach full retirement age, you can earn up to $56,520. After that, the SSA withholds $1 for every $3 earned.
Taxes
One of the biggest misconceptions surrounding Social Security is that benefits are entirely tax-free. However, it has been the rule for many years that some portion of your Social Security benefits can be taxable, depending on your income.
If you earn between $25,000-$34,000 as a single filer or between $32,000-$44,000 as a joint filer, up to 50% of your benefits can be taxed. If you earn more than $34,000 as a single filer or above $44,000 as a joint filer, up to 85% of your benefits are fair game for the IRS.
Change to Disability Insurance
The majority of individuals who collect Social Security Disability Insurance (SSDI) will receive benefits indefinitely, but there are some life events that can affect or terminate payments.
For example, you cannot collect Social Security Disability Insurance and Social Security retirement benefits at the same time. That means, once you hit full retirement age, your SSDI payments will stop and you will start receiving traditional benefits from the SSA. The good news is that SSDI and retirement benefits are typically identical, so individuals will not see a change in payments.
Another common reason for SSDI termination is if your condition improves. Every insurance case is reviewed periodically and if your doctors expect your disability to improve, the SSA will check back in 6-18 months to determine eligibility for benefits.
Questions?
If you have questions about your Social Security benefits, please reach out to me at 301-990-9170 or email [email protected] for more details or to schedule a personal meeting.
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