If you’re about to retire, you might be looking forward to earning fat Social Security checks for the rest of your life from the moment you leave your company behind.
But there are plenty of variables as to how much Social Security you’ll actually earn. Knowing these factors ahead of time can help you plan out your best Social Security earning strategy and help prevent any unwanted surprises when it comes to receiving your payments.
Here’s a look at the most important things you’ll want to know about Social Security if you want to retire soon.
Your Earnings Record Affects Your Social Security Payout
The Social Security Administration only uses your top 35 earnings years to calculate your retirement benefits. As you approach retirement, it’s a great opportunity to maximize your earnings and replace lower-earning years with higher-earning ones in your Social Security work record.
As the years right before retirement are often your peak earning years, it’s a great time to raise your future payout. If you haven’t yet worked for 35 years, this is your chance to put in enough years so that your Social Security earnings record is full.
So Does When You File
Your earnings record is one of the two main factors in determining the size of your Social Security payout. The other is the age at which you file.
You can claim Social Security retirement benefits as early as age 62, but your monthly benefit will be permanently reduced by 30%. If you wait to file until age 70, on the other hand, your Social Security checks will see an 8% annual boost from age 67 to age 70, or 24% in total.
When compared with what you’ll draw if you file at age 62, filing at age 70 amounts to a roughly 77% jump in monthly benefits.
‘Full Retirement Age’ Might Be Higher for Some
For many years, 65 was considered the “typical” retirement age, and indeed that was the age at which beneficiaries born in 1937 or earlier received full Social Security benefits. But “full retirement age” as defined by the Social Security age has been on a sliding scale for some time.
For example, for those born between 1943 and 1954, full retirement age was 66, not 65. Currently, full retirement age for those born in 1960 or later is 67. This means that if you are age 62 or younger as of 2022, you shouldn’t expect full benefits until 67, not 65.
Working While Retired Can Temporarily Reduce Your Benefits
If you’re planning on boosting your Social Security payments by working during retirement, it might actually have the opposite effect — at least temporarily. Specifically, the SSA will dock your Social Security payments by $1 for every $2 you earn above an annual threshold while you are younger than full retirement age. For 2022, this earnings limit is $19,560.
In the year you reach full retirement age, that formula changes to a $1 reduction for every $3 you earn above a different limit, which is $51,960 for 2022. Once you reach full retirement age, however, not only can you earn as much as you’d like without penalty, your previously withheld payments will also be added back into your checks.
Some of Your Benefits May Be Taxable
Even if you earn a relatively modest amount of income, up to 85% of your Social Security benefits may be taxable. The Social Security Administration uses a calculation known as “combined income” to determine whether or not your benefits are taxable.
Combined income includes your adjusted gross income, tax-exempt income and one-half of your Social Security benefits. For 2022, that limit is $25,000 as a single person, or $32,000 if you and your spouse file taxes jointly.
Your Spousal Benefit May Be Higher Than Your Own
If you’re married to a worker who qualifies for Social Security benefits, you may be entitled to a spousal benefit. The spousal benefit typically amounts to 50% of the primary wage earner’s benefit.
If you have a short work history or earned significantly less than your spouse, this spousal benefit may very well exceed the benefit you’re entitled to based solely on your own work record. The spousal benefit may also apply if you’re divorced from the primary beneficiary, but only if you were married for at least 10 years and remain unmarried.
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