How Your Benefits Are Calculated When You Work In Retirement
To see how your benefits are calculated when you continue to work in retirement, take a look at these examples provided by the Social Security Administration.
Example 1: You are under the full retirement age, are entitled to $9,600 in benefits for the year and you earn $29,560.
In this scenario, your earnings are $10,000 over the $19,560 limit for those under the full retirement age in 2022. Since the SSA reduces your benefits by $1 for every $2 you earn over the limit, your benefits would be reduced by $5,000, so instead of receiving $9,600 for the year, you would receive $4,600.
Example 2: You turned the full retirement age in August 2022 but worked the whole year, are entitled to $9,600 in benefits for the year , and you will earn $63,000 during the year, with $52,638 of it in the seven months from January through July.
From January through July, your benefits would have been reduced by $1 for every $3 over the limit. In this case, $52,638 is $678 over the $51,960 limit, so your benefits would be reduced by $226 for these seven months. Your total benefit for this time period would have been $5,600, so instead, you would receive $5,374. Starting in August, you would receive $800 per month, no matter how much you make for the rest of the year.
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Example Of Maximum Social Security Benefits
Say that someone who turned 62 in 2021 will reach FRA at 66 years and 10 months, with earnings that make them eligible at that point for a monthly benefit of $1,000. Opting to receive benefits at age 62 will reduce their monthly benefit by 29.2%, to $708, to account for the longer time that they could receive benefits, according to the Social Security Administration . That decrease is usually permanent.
If that same person waits to get benefits until age 70, their monthly benefit increases to $1,253. The larger amount is due to the delayed retirement credits earned for the decision to postpone receiving benefits past FRA. In this example, that higher amount at age 70 is about 77% more than the benefit that they would receive each month if benefits started at age 62a difference of $545 each month.
Of course, the best time for someone to start taking Social Security benefits depends on a variety of factors, not just the dollar amount of the benefit. Things such as current income and employment status, other available retirement funds, and life expectancy also must be factored into the decision.
The SSA has calculators to help you estimate your benefits.
Or Go All The Way And Work Until 70
The longer you hold off receiving your Social Security benefits, up to age 70, the bigger your check. So each month after youve reached your FRA, your payout increases by roughly 0.7% percent , which amounts to 8% per year. If you wait till age 70 then, your payments will be 32% bigger than if you had started taking benefits at 66. Once you turn 70 though, there is no added benefit in postponing payments.
Of course, working until 70 isnt for everyone, and theres no penalty in claiming your benefits when you reach your FRA. At that time, you will receive 100% of your benefit. Its also not a sure thing that waiting until 70 maximizes your lifetime benefit. After all, should you pass away the following year, waiting that long will mean you received far less total benefits than if youd claimed them as soon as you were eligible to. So consider your life expectancy as you make this decision.
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How To Maximize Your Social Security Payments
Social Security is often one of the main sources of income for retirees. For that reason, it is wise to make plans to get the most money possible from these benefits. So, how can you maximize the amount of money that you get from Social Security? Here are a few Social Security tips to maximize your benefit amount.
How Much Can I Earn While On Social Security
Many people receiving Social Security retirement benefits choose to continue working or return to work. Some enjoy the social aspect of working, while others have a financial need. However, working past your retirement can affect your monthly benefit from the Social Security Administration.
Just how much can you earn while receiving Social Security? The answer depends on whether or not you have reached full retirement age. Working can potentially decrease your monthly benefit payment and cause your Social Security benefits to become taxable. Keep reading as we tell you how much you can earn while on Social Security without affecting your benefits!
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Retirement Income Benefits For Qualified Family Members
Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you’re receiving retirement benefits, the members of your family who may be eligible for family benefits include:
- Your spouse age 62 or older, if married at least one year
- Your former spouse age 62 or older, if you were married at least 10 years
- Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
- Your children under age 18, if unmarried
- Your children under age 19, if full-time students or disabled
- Your children older than 18, if severely disabled
Your eligible family members will receive a monthly benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member’s benefit will be reduced proportionately. Your benefit won’t be affected.
Delaying Retirement Will Increase Your Benefit
For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will increase by a certain percentage. This percentage varies depending on your year of birth. For example, if you were born in 1943 or later, your benefit will increase 8 percent for each year that you delay receiving benefits, up until age 70. In addition, working past your full retirement age has another benefit: It allows you to add years of earnings to your Social Security record. As a result, you may receive a higher benefit when you do retire, especially if your earnings are higher than in previous years.
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Before You Make Your Decision
There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different. It is important to remember:
- If you delay your benefits until after full retirement age, you will be eligible for delayed retirement credits that would increase your monthly benefit.
- That there are other things to consider when making the decision about when to begin receiving your retirement benefits.
Other Pensions Might Reduce Your Social Security Benefits
Your benefits will be affected if you have a pension from a job that didnt have Social Security taxes taken out of your paycheck. Common examples include people who worked for a public education system, railroad workers and Federal government employees hired before 1984 who are covered by the Civil Service Retirement System .
Two complicated provisions will affect your claiming strategy: the Windfall Elimination Provision and the Government Pension Offset . The WEP reduces your own benefits by a discounted factor based on how many years you worked in jobs that did not withhold Social Security taxes. The GPO reduces your spousal and survivor benefits by two-thirds of the amount of your noncovered pension.
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What If I Change My Mind
If you receive Social Security benefits at a reduced rate but then change your mind, you have the option of withdrawing your application within the first 12 months of receiving benefits and paying back to the government what you’ve already received . Then, you could restart benefits at a later date to take advantage of a higher payout. Be aware that you’re limited to one withdrawal per lifetime.
For example, let’s say you elected to receive early benefits at age 62 but then decided to go back to work at age 63. You could withdraw your Social Security application, pay back the years’ worth of benefits you received, go back to work, and then wait until your full retirement age to restart your benefit checks at a higher level.
Once you reach full retirement age, another option is to voluntarily stop benefits at any point before age 70 to receive delayed retirement credits . Benefits will automatically restart at age 70 at a higher amountâunless you choose to start taking benefits before then. Note that when you withdraw your application or stop your benefits after full retirement age, you must specify if your Medicare coverageâif you have itâshould be included in the withdrawal.
Four Ways Benefits Can Be Increased Or Decreased
There are four ways the starting benefit can be permanently increased or reduced from the PIA calculated at age 62:
- Starting benefits earlyBenefits may begin as soon as age 62, but they are permanently reduced for every month between the onset of benefits and FRA.
- Delaying benefits beyond full retirement ageDelayed retirement credits can permanently increase benefits, and they are awarded for every month between FRA and a later onset of benefits.
- Starting early and continuing to workIf you start benefits before your FRA and keep working, the SSA may deduct the part of your benefits that exceeds a threshold. However, any such deductions are not permanent. When you reach your FRA, the SSA recalculates your benefits and credits back any deductions.
- Continuing to work, periodEven if you dont start benefits early, you can increase your benefits by continuing to work up to any age. Any year in which your indexed earnings are higher than one of your 35 previous highest years will boost your benefits. However, after age 60, you will not receive wage indexing, and after age 62, you will not receive bend point inflation indexing.
All four points are related to your starting Social Security benefits. Keep in mind that when your benefits start, the COLA will increase them annually. If you start benefits at age 66, your PIA automatically increases with the applicable COLAs from the years in which you turn 63 through 66.
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My Social Security Account Benefit Estimator
If performing all those calculations to determine your Social Security income sounds too complex, then relax! There is a much easier way for future Social Security beneficiaries to get an estimate of their benefits. The Social Security Administration provides a free Social Security estimator on its website. The first thing you need to do is create a My Social Security account at www.ssa.gov. This account will provide you access to your Social Security statement, earnings history, and the benefits estimator.
This calculator makes it extremely easy to estimate your benefits based on different scenarios. You can select different retirement ages and see how that will affect your benefit payment. In addition, you can make adjustments to future earnings. For instance, you might receive a 5% raise each year which will have a big impact on your total earnings over your lifetime. The benefit estimator will allow you to make these adjustments to get a very accurate estimate of how much your monthly payments will be at retirement. This is an extremely useful retirement planning tool, and you should consider using it when looking at your personal finances to determine your retirement goals.
Effect Of Delaying Retirement Benefits
1Represents Full Retirement Age based on DOB January 2, 1960
2PIA = The primary insurance amount is the basis for benefits that are paid to an individual
That higher baseline would last for the rest of your retirement and serve as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesâit’s not always possible to wait, particularly if you are in poor health or can’t afford to delayâthe benefits of waiting can be significant.
Be aware that if you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you don’t sign up at age 65. If you start Social Security benefits early, you’ll automatically be enrolled into Medicare Parts A and B when you turn age 65.
Your annual Social Security statement will list your projected benefits between age 62 to 70, assuming you continue to work and earn about the same amount through those ages. If you need a copy of your annual statement, you can request one or view it online on the Social Security Administration portal.
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The maximum Social Security retirement benefit that you can receive depends on the age when you begin collecting and your earnings history, among other factors. In 2022, the maximum is $3,345 per month for someone who files at full retirement age at age 66. But $4,194 is the absolute highest benefit for those who qualify and delay claiming until age 70.
How Much Do You Have To Make To Get Maximum Social Security
To receive the maximum Social Security benefit, youd need to earn at least the maximum wage taxable by Social Security for 35 years and delay claiming the benefit until you reach 70. The earnings cap adjusts every year based on changes to the national average wage index and is $147,000 in 2022, up from $142,800 in 2021.
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Working After Full Retirement Age Might Increase Benefits
For the purposes of calculating your retirement benefit, working after full retirement age is essentially the same as working before. After all, youll continue to pay Social Security taxes on your earnings as long as you work, so youre still eligible to derive benefits from those earnings.
But your actual benefit will increase only if youre still earning at a level that equals or exceeds your top 35 working years. If your earnings are less, they wont affect your benefit because the SSA uses your top 35 years of earnings to calculate what youre paid.
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In this sense, its not worth it to continue working from full retirement age to age 70 if you arent earning much, at least from a Social Security benefit perspective. Obviously, youll still get to keep the money you earn but, unless those years are among your top 35, your Social Security retirement benefit wont increase.
What Is My Full Retirement Age
Full retirement age for future beneficiaries will fall between the ages of 66 and 67. This is the age at which you can expect a full, unreduced benefit from Social Security. If you delay filing for benefits until after your full retirement age, you can expect a benefits increase of up to 8% per year until you reach age 70.
Your Social Security Money Is Based On Your Income
The amount of money you make during your career plays an important role in determining how much money you’ll receive from Social Security. If you work a total of 45 years, only the highest 35 years of earnings would count toward your benefit amount. For example: If you earned $35,000 for the first 10 years of your employment history and $55,000 for 35 years, only the $55,000 income would count .
Here’s more information on how your Social Security benefits are calculated.
You Can See Your Estimated Monthly Retirement Amount Online Now
If you’re interested in seeing your estimated monthly Social Security benefits amount based on your current work history, it’s quick and easy to do. You’ll need to create a My Social Security account online.
Even if you’re still 20 or more years away from retiring, you can see an estimate of how much you could get based on last year’s income and previous years worked. You’ll see a table that shows your monthly benefit amount for retiring early, on time or delayed.
When you’re ready to collect your benefits, you can also use My Social Security to fill out a retirement application, among other things.
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Why We Have An Earnings Limit
Not long ago, a viewer on my YouTube channel asked me to give her a good reason why we have the Social Security earnings limit. The comments that followed showed how many viewers shared the belief that the earnings limit is unfair and should be eliminated.
In my response, I explained that the rationale behind the entire program of Social Security was to create a safety net. The original intent of the Social security program was not to supplement retirement income, but to keep the elderly out of poverty.
I also added that todays earnings limit is relatively generous compared to where the Social Security earnings limit began. The original Economic Security Bill President Roosevelt sent to Congress featured a very restrictive earnings limit.
That bill stated, No person shall receive such old-age annuity unless . . . He is not employed by another in a gainful occupation.
Whoa! This means that if you had even a single dollar in wages from a job, you could not collect a Social Security benefit at all.
Thankfully, the system we have in place today allows for individuals to have some earnings from work while they are receiving a Social Security benefit.
However, its very important to stay informed on the dollar amount of this limit because it changes every year.
For 2022, the Social Security earnings limit is $19,560. For every $2 you exceed that limit, $1 will be withheld in benefits.
2022 Social Security Earnings Limit