Essential Understanding of Social Security Benefits for Retirees
© Shane Flait 2010

If you’re considering when you should retire, you’ll need to know just when your Social Security benefits (i.e. monthly income) kicks in for you – and how much you’ll get. This article summarizes when and who gets Social Security benefits, how much, and what affects how much you get. You can get all your information at the Social Security Administration’s website: ssa.gov

 

During the years you were working, you contributed to Social Security. You paid a fixed fraction of your gross wages up to a limit you every year toward it. Over the years both the fraction and the limit increased.

 

The Social Security Administration (i.e. the  government) averages your best 35 years of working income – all years indexed to wage inflation over that time – to determine what your Social Security Benefit (monthly income) will be when you reach your ‘Full Retirement Age’(FRA)  (aka Normal Retirement Age). And that amount is called your Primary Insurance Amount (PIA).

 

Your FRA

The government is slowly increasing the FRA for people born later. The FRA for boomer it’s 66.  You can look yours at the SSA website.

 

Starting SS benefits earlier or later than your FRA

You have the option of beginning your Social Security (SS) benefits as early as 62. But your benefits are permanently reduced from your FRA benefit amount. At age 62 you receive about 75% of FRA benefit.

 

On the other hand, as an incentive to delay starting your benefits beyond your FRA, your benefits will be increased about 8% per year until you reach 70 – for a 30% increase above your FRA benefit. Benefits are prorated for beginning any time between age 62 and 70. There’s no benefit to delaying longer than 70.

 

Be sure to apply several months before you intend receiving benefits. The average monthly benefit in 2009 was $1153. The maximum benefit at FRA was $2,323/mo. You can find your projected benefit on you SS statement each year. Or you can estimate it using SSA’s website calculator.

 

When to start receiving?

If you never begin, no benefits are owed to you when you die, but the longer you wait to begin, the higher will be your monthly benefit. So when should you begin?

 

Roughly speaking, if you die at the statistical age (late 70s) expected, you’ll have received the same total amount from SSA no matter when you started. So your late 70’s is the breakeven age. If you expect to die earlier, it’s better to start earlier; if you live longer, you’ll receive more by starting later. Make your choice!

 

Taxes on Social Security Income

Your SS benefits are tax free if you have a lower retirement income. It depends on what your modified adjusted gross income (MAGI) is. Your MAGI is your adjusted gross income plus any tax free bond interest plus 50% of your social security (annual) income.

 

If you’re single with a MAGI less than $25,000 or married with a MAGI less than $32,000, you’re not taxed on your SS income. At higher levels, possibly 50% of your SS income is taxed. When your MAGI reaches $34,000 (single) or $44,000 (married) as much of 85% of your SS is taxed.

 

Effect of working income while receiving Social Security

Those who are working and collecting their Social Security benefits before reaching their FRA may have some of their SS benefits reduced if their working income is above a threshold level – roughly about $15,000 in 2009. They get it back, though, at FRA.

 

After reaching your FRA, working income doesn’t affect SS benefits – other than making them vulnerable to taxation.

 

Who else can get Social Security benefits based on your benefits?

Your spouse, ex-spouse and widow can choose to receive benefits based on your benefits. But realize your benefit is not reduced because of this. Also each of these persons will get either the benefit based on you or his (or her) own working benefit – whichever is larger.

 

Your spouse is entitled to 50% of your FRA benefit while you’re alive. But this entitlement benefit is reduced accordingly if she begins receiving it before her FRA. The same is true for an ex-spouse, but only if you were married to her or him for 10 years or more.

 

Your spouse is entitled to 100% of your Social Security benefit when you die.

END

 

Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com