Learn more about factors such as age, employment, taxes, and more that can impact your Social Security in retirement.
If you work and live to be 62, you will be eligible for Social Security benefits. However, there are many factors and strategies that can produce benefits at higher rates, adding financial security to you and your spouse’s retirement. Here are some of the things you should consider before claiming your benefits so that you get the outcome that best meets your needs.
Eligibility – People obtain eligibility for Social Security through employment. As you earn income and pay Social Security taxes, you are awarded credits. You can earn a maximum of 4 credits per year, and once you have obtained the minimum necessary, you can claim your benefits at age 62 or older. The number of required credits for eligibility varies, and is dependent on your year of birth.
Timing – The minimum age to begin collecting benefits is 62, however your benefits will be provided at a reduced rate unless you wait till Full Retirement Age. Full Retirement Age, or FRA is age 66 to 67 depending on the year of your birth, and will allow for election of full benefits. The age at which you should claim your Social Security is largely dependent on your retirement goals.
You may choose to collect before FRA if you:
- Need additional financial support now
- Have health issues and may not live beyond FRA
- Plan to invest your benefits or wish to keep other investments or assets intact
- Your spouse has the higher income and continues to work.
You may choose to collect at FRA or after if you:
- Are financially stable
- Still work and want to receive full benefits at a higher rate later
- Have good health and anticipate living beyond FRA
- Earn more than your spouse and prefer to wait to FRA to guarantee your spouse collects the highest benefit rate.
Working – People can opt to begin collecting Social Security benefits while they are working, however, doing so prior to FRA can result in penalties, further reducing the benefit amount. Once a recipient reaches FRA, they are free to earn income without impacting his or her Social Security benefits.
Taxes – Your Social Security benefits is considered taxable income. Taxes are determined by your provisional income which is your adjusted gross income and tax-exempt interest, along with half of your Social Security benefits. If you believe you may have less income later on in retirement, it may be to your benefit to delay claiming your benefits to alleviate your tax burden. Discuss your options with a financial counselor at First Reliance Bank to help determine your best course.
Spousal Benefit – For married couples, the lower earning spouse may collect an amount equal to half the amount of the higher earning spouse’s benefits if it is greater than lower earner’s benefit.
Special Provisions – In addition to the factors listed above, there are three special provisions that recipients can elect that may increase benefits. These include:
Claim and Suspend – People that are FRA and continue to work can suspend their benefits so that their spouses collect half the amount of their benefit. Later, when benefits are reestablished, the amount has increased, enlarging the lifetime benefit.
Claim Now, Claim More Later – Married couples at FRA can choose to have the lower earner forgo claiming Social Security benefits and collect half of the spouse’s benefit until his or her own benefit gathers enough delayed retirement credits to enhance the overall amount.
Do-Over – Those who have elected to begin receiving benefits have 12 months to change their mind and pay back what they have received interest free, and restart their benefits at higher rate based on their current age. Individuals are limited to one Do-Over per lifetime.
Though complicated at times, understanding your Social Security benefits and how to get the most bang for your benefits is essential to a financially stable retirement. To help you make the tough decisions about how to best invest in your Social Security, contact First Reliance Wealth Strategies. We will provide you with the guidance you need to make informed decisions and feel at peace about your future.