Social Security benefits and calculating how much you’re going to receive can be difficult to understand at times, but they don’t need to be. For a concise and quick explanation of Social Security benefits, continue reading below.
First, it’s important to know when you’ll be able to start collecting your Social Security benefits. The Social Security Administration calls the age at which you’re allowed to start collecting your “full retirement age.”[1] This number is calculated based on the year you were born.
Your full retirement age will vary. For those born between 1943 and 1954, your full retirement age is 66. Anyone born after 1954, the full retirement age increases by two months annually until stopping at 67 for those born in 1960 or later.
Those who delay collecting benefits after reaching their full retirement age will see even more money. Your monthly benefit will increase by 8% for every year postponed past your full retirement age, up to age 70.[2]
To qualify for Social Security retirement benefits, you need ten years of work, but the Social Security Administration bases how much you get on your highest 35 years of earning.[3] The sum of earnings from these years are added up and divided by the number of months in those years. If you worked for less than 35 years total, a value of $0 is used for any year exceeding the number you worked. For example, if you only worked for 30 years, the value for the remaining five years will be $0.
Working longer, and at a higher salary, will thus dictate how much you will earn in benefits. Your earnings record is available in your Social Security statements. However, your monthly benefit is capped at a maximum. In 2023, this maximum was $4,555 a month.[4]
Unemployment and Disability benefits do not qualify as earned income, so don’t worry about earning too much from these sources.
Additionally, working at a part time job after you retire and start collecting Social Security benefits will mean that part of your benefits may be temporarily withheld based on how much you’re earning. For example, in 2023, anything earned in excess of $21,240 means your benefits will be reduced by $1 for every $2 you earn. From there, your benefits are reduced by $1 for every $3 you earn in excess of $56,520.[5]
However, your Social Security Benefit will increase to account for these ‘lost’ dollars after you reach your full retirement age.
It’s also important to keep in mind that your Social Security benefits may be partially taxable if your combined income (benefits and other income) exceeds a certain threshold. For single filers with a combined income of $25,000 to $34,000, they may have to pay income tax on up to 50 percent of their benefits. This number is $32,000 to $44,000 for joint filers. Anything above $34,000 or $44,000 for single or joint filers – respectively – means that up to 85% of your benefits may be taxable.[6]
For some, Social Security benefits are a long way off. For others, you may begin collecting in the next few years. It’s important to know the ins and outs of the program to effectively maximize the amount of benefits you’re set to receive. For more information, visit the Social Security Administration’s website at www.ssa.gov or consider speaking with a financial advisor.
The views stated in this blog are not necessarily the opinion of Cetera Advisor Networks, LLC or CWM, LLC, and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
This information may not be relied on for the purpose of determining your social security benefits or eligibility or avoiding any federal tax penalties. You are encouraged to seek advice from your own tax or legal professional.
[1] Social Security Administration. “Starting Your Retirement Benefits Early.” Social Security Administration, n.d. https://www.ssa.gov/benefits/retirement/planner/agereduction.html. Accessed 23 Aug 2024.
[2] Social Security Administration. “Early or Late Retirement?” Social Security Administration, n.d. https://www.ssa.gov/oact/quickcalc/early_late.html. Accessed 23 Aug 2024.
[3] Social Security Administration. “Social Security Benefit Amounts.” Social Security Administration, n.d. https://www-origin.ssa.gov/oact/COLA/Benefits.html. Accessed 23 Aug 2024.
[4] Social Security Administration. “What is the maximum Social Security retirement benefit payable?” Social Security Administration, 02 Jan 2024. https://faq.ssa.gov/en-US/Topic/article/KA-01897. Accessed 23 Aug 2024.
[5] Social Security Administration. “Receiving Benefits While Working.” Social Security Administration, n.d. https://www.ssa.gov/benefits/retirement/planner/whileworking.html. Accessed 23 Aug 2024.
[6] Social Security Administration. “Income Taxes and Your Social Security Benefit.” Social Security Administration, n.d. https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html. Accessed 23 Aug 2024.
