Social Security Benefits

Social Security Retirement Benefits

Posted on May 15, 2023 by fsykes - Social Security Benefits

Introduction

Providing retirement benefits was a key provision of the Social Security Act of 1935. Older Americans were especially financially vulnerable during the Great Depression, and Social Security was enacted partly to provide them with some continuing income after retirement. Today, although the scope of the program has been widened through amendments to include survivor, disability, and medical insurance benefits, Social Security remains synonymous with retirement benefits.

Meeting the eligibility criteria for retirement benefits

Test your knowledge. Pick the two people you believe may be eligible for Social Security retirement benefits:

A 64-year-old married secretary
A 62-year-old male neurosurgeon
A 65-year-old divorced violinist
A 70-year-old unemployed machinist

If you picked 1 and 4, you were right. On the other hand, if you picked 2 and 3, you were also right. All of these individuals could be eligible for Social Security retirement benefits. No matter what your occupation, gender, or income level, you are eligible for Social Security retirement benefits if you are:

Age 62 or older and a fully insured worker (you have earned 40 Social Security credits) or
A qualified family member of a fully insured worker:
1. A spouse of a retired worker (spouse must be age 62 or older unless caring for the worker’s dependent child) or
2. The divorced spouse of a fully insured worker who is eligible for retirement (spouse must be retirement age unless caring for dependent child) or
3. A dependent or disabled child of the retired worker

Worker’s retirement benefit

Your Social Security retirement benefit is a main source of retirement income. When you begin receiving benefits will affect how much you receive every month.

When can you start receiving retirement benefits?

Deciding when to retire and begin receiving Social Security retirement benefits is a personal decision. It can be an easy one (“I’m tired of being a sales manager; I’d rather join the Senior PGA Tour.”) or a difficult one (“My kids are in college; I want to retire, but Harvard is expensive!”). When making this decision, consider the following age requirements that will affect the amount of your Social Security benefit check:

Full retirement–If you retire at full retirement age, you will be eligible for full Social Security benefits based on 100 percent of your primary insurance amount (PIA), provided that you are fully insured. Your full retirement age depends upon the year in which you were born:

Birth date	Full retirement age will be
1943-1954	66 years
1955	66 years, 2 months
1956	66 years, 4 months
1957	66 years, 6 months
1958	66 years, 8 months
1959	66 years, 10 months
1960 and later	67 years

Note: If you were born on January 1st of any year, the full retirement age for the previous year applies.

Early retirement–The minimum age at which you can retire and receive Social Security retirement benefits is currently 62. If you retire at age 62, you will be eligible for reduced retirement benefits based on a percentage of your primary insurance amount (PIA) entitlement, provided that you are fully insured. Your retirement benefit will be reduced by 5/9ths of 1 percent (or.55556 percent) for every month between your retirement date and full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. This reduction is permanent; when you reach full retirement age, you will not be eligible for a benefit increase.

Delayed retirement– You will increase your retirement benefit for each month that you delay receiving Social Security retirement benefits past full retirement age. Your benefit will increase by a predetermined percentage for each month you delay retirement up to the maximum age of 70. For anyone born in 1943 or later, the monthly percentage is 2/3 of 1%, and the annual percentage is 8%.

The delayed retirement credit does not affect your PIA. Even if you elect to delay receiving Social Security retirement benefits, you can still receive Medicare benefits at age 65. Remember to file an application for Medicare, even if you don’t file one for Social Security retirement benefits until later.

Retirement benefits for qualified family members

Certain family members of a fully insured worker may be eligible for retirement benefits based on the worker’s record. Retirement benefits are generally paid to family members who relied upon the worker’s income for support. Benefits paid to family members are based upon the retired worker’s PIA and paid in addition to the benefit paid to the worker. The following table outlines who these family members are, what benefits they are entitled to receive, and the basic conditions they must meet in order to be eligible for those benefits:

Beneficiary	Minimum Age	Insured status	Conditions	Amount of Benefit
Spouse of retired worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Worker must be fully insured. Spouse does not have to be insured	Worker must have filed for retirement benefits before spouse is eligible	50% of the worker’s PIA, subject to early retirement reduction, if applicable
Divorced spouse of worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Marriage must have lasted at least 10 years before final divorce date. Remarriage may affect benefit	Worker does not have to be receiving retirement benefits but must be age 62 or older	Usually 50% of the worker’s PIA, subject to early retirement reduction, if applicable
Child of retired worker	No minimum age, but must be under 18 or under 19 (in school). Disabled child can be over 18 if disability began before 22	Worker must be fully insured	Worker must be receiving retirement benefits before child is eligible. Child in school must be a full-time student and unmarried	Each child receives 50% of worker’s PIA. Family maximum, however, may limit this benefit

Family benefits end when the retired worker dies. However, at that time, family members may be eligible to receive Social Security survivor benefits.

Spouse’s benefits

Spouse’s benefits are payable to the spouse of a retired worker. To be eligible, the spouse must meet one of the following conditions:

The spouse must have been married to the worker for at least one year before applying for benefits, or
The spouse must be the natural parent of the worker’s child, or
The spouse must have been entitled or potentially entitled in the month before marriage to benefits from a previous spouse, surviving spouse, or parent

In addition, the spouse must be:

Age 62 or older and eligible for a greater retirement benefit based on the spouse’s PIA than on his or her own PIA, or
Caring for a child who is under age 16 or disabled

Once your spouse begins receiving retirement benefits, you may be eligible for a spousal retirement benefit provided that you are of minimum retirement age (currently 62). To be eligible for spouse’s benefits, you do not have to be insured for Social Security benefits based on your own earnings record. Even if you have never worked outside your home or in a job covered by Social Security, you may be eligible for spousal benefits. However, if you have worked and are eligible for benefits based on your own PIA, then you can’t elect to receive the spouse’s benefit unless it would be greater than the benefit provided by your own PIA. The amount of your spousal retirement benefit will be determined by your spouse’s PIA and your age at retirement (not your spouse’s age at retirement). If you are of full retirement age you will receive full spousal benefits. This benefit amount is 50 percent of your spouse’s PIA. If you are less than full retirement age, you will receive a reduced spouse’s benefit amount. Your benefit will be reduced by 25/36 of 1 percent (.69 percent) for each month that you are under full retirement age.

Josephine retires at full retirement age from her job as a plumber. Her husband, Mike, decides to retire early. Mike is not fully insured for retirement benefits, so he decides to apply for a spouse’s retirement benefit based on Josephine’s PIA. Since Mike is 36 months away from his full retirement age, his spouse’s benefit will be 25 percent less than his benefit would have been had he waited until full retirement age to receive spouse’s benefits (36 x.69). Thus, his retirement benefit will be 37.5 percent of Josephine’s PIA.

You may be eligible for the spouse’s retirement benefit if you are less than age 62 if you are caring for the natural child of your retired spouse and the child is under the age of 16 or disabled. Your benefit will equal 50 percent of the worker’s PIA. However, if the child’s status changes (the child becomes older than 16 or is no longer disabled), then you will no longer be eligible to receive the retirement benefit until you reach age 62.

Divorced spouse’s benefit

If you are a divorced spouse of a fully insured worker, you are eligible to receive the same spousal retirement benefit as a married spouse provided that you were:

Married to the worker for at least 10 years before the divorce became final (unless you were already age 62 when the divorce became final), or
Divorced for at least two years if the worker is not yet receiving retirement benefits

You must meet the same age and eligibility requirements as a married spouse with one exception: Your ex-spouse does not have to be retired in order for you to receive benefits as long as you are of minimum retirement age and you have been divorced for at least two years. However, your ex-spouse must be eligible to receive benefits even if he or she has not yet elected to begin receiving them. Benefits for a divorced spouse are calculated independently from those of a current spouse. This means that if your ex-spouse has remarried, your benefits won’t be affected. However, if you remarry, then your benefits may be affected. Like a current spouse’s benefits, your benefit will be reduced if you retire at less than full retirement age.

Child’s benefit

Children of a retired worker are entitled to Social Security retirement benefits if:

The parent is receiving Social Security retirement benefits.
The child is dependent upon the parent for support.
The child is enrolled full-time in elementary or high school and is under age 18 or between the ages of 18 and 19. A child who is disabled is eligible past age 18 if the disability began before age 22.
The child is unmarried.

The amount of child’s benefit payable to each eligible child is 50 percent of his or her retired parent’s PIA. However, a child’s benefit will often be subject to the family maximum. If the total amount of benefits paid to eligible family members based on an individual’s PIA exceeds the family maximum benefit, each child’s benefit will be reduced accordingly.

Questions & Answers

When should you file an application to receive Social Security retirement benefits?

The Social Security Administration suggests that you apply three months before the date you want your benefits to start.

Can Social Security retirement benefits be paid retroactively?

Benefits can be paid up to six months retroactively, beginning with the first month in the retroactive period in which you met entitlement requirements (other than filing an application).

When will Social Security retirement benefits end?

Your retirement benefits will end when you die. However, your spouse, children, or dependent parents may be eligible for survivor benefits based on your earnings record.

Thank you for taking the time to read this article. We hope it has given you some insight into Social Security. If you have any questions or would like more information, please feel free to contact us. We would love to hear from you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Reducing Compensation In Excess of the Maximum Earnings Base to Minimize Social Security Taxes

Posted on May 11, 2023 by fsykes - Business Owners, Social Security Benefits

What is it?

Reducing or eliminating compensation in excess of the maximum earnings base is a strategy that may help you minimize Social Security payroll taxes or self-employment taxes. You can reduce or eliminate compensation you receive in two ways: (1) by working less or not at all once you have reached the maximum earnings limit in any one year, or once you have earned the maximum you can in each of the 35 highest earnings years used to calculate your Social Security retirement benefit, or (2) by converting your compensation to a nontaxable form.

Who can use this strategy?

You probably don’t work just to earn a future Social Security benefit. You work because you have to, because you like to, or because you’re not yet ready to retire. However, some workers (i.e., business owners) have more flexibility than others in determining how much they earn or how they’re compensated for working.

Anyone whose annual earnings have equaled or exceeded the maximum earnings base in at least 35 years of employment

Your Social Security retirement benefit is based on your average indexed monthly earnings (AIME). Your AIME is calculated by averaging your 35 highest years of indexed and nonindexed earnings and applying a benefit formula to that average. If, in each of those 35 years, you earned an amount equal to the maximum earnings base for that year, you will receive the maximum Social Security retirement benefit when you become entitled. If you continue to work once you have 35 years of maximum earnings recorded on your Social Security record, you won’t receive any additional retirement benefit, and the payroll taxes you pay will, in effect, be wasted. The maximum earnings base changes from year to year; in 2023, it’s $160,200.

Anyone who expects to have earnings in excess of the maximum earnings base during any one year

If your annual earnings exceed the maximum earnings base during any one year, you won’t pay FICA taxes on those excess earnings, but you’ll pay Medicare taxes on those earnings. When you reduce or eliminate the compensation you receive over the maximum earnings base, you’ll save payroll taxes on the excess amount. If you’re an employee, you will save 1.45 percent of that amount; if you’re self-employed, you’ll save 2.9 percent of that amount.

How does it work?

You estimate your lifetime or annual earnings

To estimate your lifetime earnings, you can go to the Social Security Administration’s website (ssa.gov) and sign up for a my Social Security account so that you can view your Social Security Statement. This statement includes a detailed record of your lifetime earnings. To estimate your current annual earnings, use your paycheck stubs or, if you’re self-employed, your self-employment earnings estimate.

Determine how much you might save in payroll or self-employment tax if you reduce or eliminate compensation

Determining how much you should save will depend on whether you’re the employer or the employee and how much your excess earnings are.

As a self-employed person, Cornelia earned $11,600 in excess of the maximum earnings base for that year. If she reduced her compensation to the maximum earnings base for that year, she would save $336.40 (2.9 percent of $11,600) in Social Security taxes.

Decide whether you can stop working or try to convert compensation to a nontaxable form

Once you determine how much in self-employment taxes or payroll taxes you can save, decide how you want to reduce or eliminate your compensation in excess of the maximum base amount. You might choose to stop working if, for example, you’re already past minimum retirement age (currently 62).

You might choose to convert compensation to a nontaxable form if you own a business or are employed by a business. Nontaxable forms of compensation (for Social Security purposes) include some fringe benefits and investment income.

Strengths

Can save payroll taxes that otherwise would have been wasted

The strategy is particularly effective if used by a business owner who can receive nontaxable benefits in lieu of salary. Or by a person who works after retirement and already receives a benefit close to the maximum due to the impact of excess earnings on a retirement benefit.

Tradeoffs

Your tax savings might be minimal if you use this strategy to reduce your payroll taxes in only one tax year

Note that in the example above, Cornelia only saved $336.40 by reducing her income by $11,600. If she had been an employee instead of being self-employed, she would have saved only half that amount. However, if she received nontaxable compensation or limited her earnings in several years, she might save enough to make using this strategy worthwhile.

If you are interested in our Social Security planning options, learn more here! We understand that retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

How Secure Is Social Security?

Posted on May 8, 2023 by fsykes - Social Security Benefits

If you’re paying attention to the news, you’ve probably come across story after story on the health of Social Security. And depending on the actuarial assumptions used and the political slant, Social Security has been described as everything from a program in need of some adjustments to one in crisis requiring immediate, drastic reform.

Obviously, the underlying assumptions used can affect one’s perception of the solvency of Social Security, but it’s clear some action needs to be taken. However, even experts disagree on the best remedy. So let’s take a look at what we do know.

Just the facts

According to the Social Security Administration (SSA), approximately 70 million Americans currently collect some sort of Social Security retirement, disability, or survivor benefit. Social Security is largely a pay-as-you-go system, with today’s workers (and employers) paying the benefits for today’s retirees.¹

How much do today’s workers pay? Well, the first $160,200 (in 2023) of an individual’s annual wages is subject to a Social Security payroll tax, with half paid by the employee and half by the employer (self-employed individuals pay all of it). Payroll taxes collected are put into the Social Security trust funds and invested in securities guaranteed by the federal government. The funds are then used to pay out current benefits.

The amount of your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.

Your age at the time you start receiving benefits also affects your benefit amount. You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age to begin receiving benefits. Specifically, your retirement benefit will be reduced by 5/9ths of 1% for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1% thereafter.

For example, if your full retirement age is 67, you’ll receive about 30% less if you retire at age 62 than if you wait until age 67 to retire. This reduction is permanent — you won’t be eligible for a benefit increase once you reach full retirement age.

What Is Your Full Retirement Age?
Birth Year	Full Retirement Age
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

If you were born on January 1 of any year, refer to the previous year to determine your full retirement age.

Demographic trends

Even those on opposite sides of the political spectrum can agree that demographic factors are exacerbating Social Security’s problems — namely, the number of retirees is increasing and the birth rate is decreasing. This means that, over time, fewer workers will have to support more retirees.

According to the SSA, Social Security is already paying out more money than it takes in. However, by drawing on the Social Security trust fund (OASI), the SSA estimates that Social Security should be able to pay 100% of scheduled benefits until fund reserves are depleted in 2034.

Once the trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 77% of scheduled benefits. So at that time, if no changes are made, beneficiaries may receive a benefit that is about 23% less than expected.²

Possible fixes

While no one can say for sure what will happen (and the political process is sure to be contentious), here are some solutions that have been proposed to help keep Social Security solvent for many years to come:

Allow individuals to invest some of their current Social Security taxes in “personal retirement accounts”
Raise the current payroll tax
Raise the current ceiling on wages currently subject to the payroll tax
Raise the retirement age beyond age 67
Reduce future benefits
Change the benefit formula that is used to calculate benefits
Change how the annual cost-of-living adjustment for benefits is calculated

Uncertain outcome

Progress on addressing Social Security’s financial challenges has been slow. However, the SSA continues to urge all parties to address the issue sooner rather than later, to allow for a gradual phasing in of any necessary changes.

Although debate will continue on this polarizing topic, there are no easy answers, and the final outcome for this decades-old program is still uncertain.

In the meantime, what can you do?

The financial outlook for Social Security depends on a number of demographic and economic assumptions that can change over time, so any action that might be taken and who might be affected are still unclear.

But no matter what the future holds for Social Security, your financial future is still in your hands. Focus on saving as much for retirement as possible, and consider various income scenarios when planning for retirement.

It’s also important to understand your benefits and what you can expect to receive from Social Security based on current law. You can find this information on your Social Security Statement, which you can access online at the Social Security website, ssa.gov, by signing up for a my Social Security account.

Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

1) Fast Facts & Figures About Social Security, 2022

2) 2022 OASDI Trustees Report

Social Security: What Should You Do at Age 62?

Posted on May 4, 2023 by fsykes - Retirement Benefits, Social Security Benefits

Is 62 your lucky number? If you’re eligible, that’s the earliest age you can start receiving Social Security retirement benefits.

Although collecting early retirement benefits makes sense for some people, there’s a major drawback to consider: If you start collecting benefits early, your monthly retirement benefit will be permanently reduced. So before you put down the tools of your trade, there are some factors you’ll need to weigh before deciding whether to start collecting benefits early.

How much will your retirement benefit be?

Your Social Security retirement benefit is based on the number of years you’ve been working and the amount you’ve earned. Your benefit is calculated using a formula that takes into account your 35 highest earnings years. If you earned little or nothing in several of those years (if you left the workforce to raise a family, for instance), it may be advantageous to work as long as possible, because you’ll have the opportunity to replace a year of lower earnings with a higher one, potentially resulting in a higher retirement benefit.

If you begin collecting retirement benefits at age 62, each monthly benefit check will be 25% to 30% less than it would be at full retirement age. The exact amount of the reduction will depend on the year you were born. (Conversely, you can get a higher payout by delaying retirement past your full retirement age — the government increases your payout every month that you delay retirement, up to age 70.)

However, even though your monthly benefit will be 25% to 30% less if you begin collecting retirement benefits at age 62, your total lifetime Social Security benefits might be the same or higher than if you had waited until full retirement age to start collecting benefits. That’s because the longer you wait to claim Social Security, the shorter the time period over which you will receive benefit payments.

The following chart shows how much an estimated $1,000 monthly benefit at full retirement age would be worth if you started taking a reduced benefit at age 62.

Birth Year	Full Retirement Age	Benefit

1956	66 years, 4 months	$733
1957	66 years, 6 months	$725
1958	66 years, 8 months	$716
1959	66 years, 10 months	$708
1960 or later	67 years	$700

Source: Social Security Administration

If you want to estimate the amount of Social Security benefits you will be eligible to receive in the future under current law (based on your earnings record) you can use the Social Security Administration (SSA) Retirement Estimator. It’s available at the SSA website at ssa.gov. You can also sign up for a my Social Security account to view your online Social Security Statement at the SSA website. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Have you thought about your longevity?

Is it better to take reduced benefits at age 62 or full benefits later? The answer depends, in part, on how long you live and how long you will need your money to last. Of course, no one can predict exactly how long they’ll live. But by taking into account your current health, diet, exercise level, access to quality medical care, and family health history, you might be able to make a reasonable assumption.

How much income will you need?

Another important piece of the puzzle is to look at how much retirement income you’ll need, based partly on an estimate of your retirement expenses. If there is a large gap between your projected expenses and your anticipated income, waiting a few years to retire and start collecting Social Security benefits may improve your financial outlook.

If you continue to work and wait until your full retirement age to start collecting benefits, your Social Security monthly benefit will be larger. What’s more, the longer you stay in the workforce, the greater the amount of money you will earn and have available to put into your overall retirement savings. Another plus is that Social Security annual cost-of-living increases are calculated using your initial year’s benefits as a base — the higher the base, the greater your annual increase.

Will your spouse be affected?

When to begin receiving Social Security is more complicated when you’re married. The age at which you begin receiving benefits may significantly affect the amount of lifetime income you and your spouse receive, as well as the benefit the surviving spouse would be entitled to, so you’ll need to consider how your decision will affect your joint retirement planning.

Do you plan on working after age 62?

Another key factor in your decision is whether or not you plan to continue working after you start collecting early Social Security benefits. That’s because income you earn before full retirement age may reduce your Social Security retirement benefit. Specifically, if you are under full retirement age for the entire year, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($21,240 in 2023).

In the year you reach full retirement age, different rules apply; $1 in benefits will be withheld for every $3 you earn over the annual earnings limit ($56,520 in 2023).

If your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age and omits the months in which your benefit was reduced.

Other considerations

In addition to the factors discussed here, other financial considerations may influence whether you start collecting Social Security benefits at age 62. How do other sources of retirement income factor in? Have you considered how your income taxes will be affected?

What about personal considerations? Do you plan on traveling, volunteering, going back to school, starting your own business, pursuing hobbies, or moving to a new location? Do you have grandchildren or elderly parents whom you want to help take care of? Every person’s situation is different.

For more information

Social Security rules can be complex. If you are interested in our Social Security planning options, learn more here! We understand retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Even if you start collecting Social Security benefits at age 62, remember that you still won’t be eligible for Medicare until you reach age 65. So unless you’re eligible for retiree health benefits through your former employer or your spouse’s health plan at work, you may need to pay for a private health policy until Medicare kicks in.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Social Security Overview

Posted on April 26, 2023 by fsykes - Social Security Benefits

What is it?

Social Security is a federal system of programs designed to protect individuals and families against economic hardship. Most Americans work in occupations covered by the Social Security system, and they will at some point in their lives receive Social Security benefits. The system is administered by the Social Security Administration and financed mainly by Social Security tax (FICA) withholding on wages and by taxes on self-employment income.

How does it work?

Social Security is a compulsory system

Social Security is a compulsory system. Employers, employees, and self-employed individuals are required to participate and pay taxes that finance Social Security benefits. As an employee, you pay a Social Security tax of 6.2 percent of your pay (matched by your employer) each pay period and you pay a Medicare tax of 1.45 percent of your pay (matched by your employer). If you are self-employed, you pay a 12.4 percent self-employment tax on your earnings to finance Social Security programs and you pay a 2.9 percent tax to finance Medicare.

The Social Security tax on your earnings applies only to earnings under the maximum earnings limit ($160,200 in 2023). No limit applies, however, to the Medicare tax on your earnings.

Your earnings are tracked by the Social Security Administration

Your employer reports your annual Social Security earnings to the Social Security Administration. If you are self-employed, the IRS reports your earnings. They are compiled on a record known as a Social Security earnings record, which is identified by your nine-digit Social Security number. This earnings record is eventually used to calculate the amount of your Social Security benefit.

You receive benefits after meeting certain eligibility criteria

To be eligible to receive Social Security benefits, you must be insured under the system. To become insured, you have to work for a certain amount of time in an occupation covered under Social Security or be the spouse, ex-spouse, widow or widower, or parent of someone who has. You also have to meet the eligibility requirements specific to the benefit.

Social Security benefits

Retirement benefits

When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Predicting the future of Social Security is difficult because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.”

Normal (full) retirement age is the age at which you can retire and receive full (unreduced) Social Security benefits. However, many people choose to receive Social Security retirement benefits early at age 62 (early retirement age). You can also retire and begin receiving benefits after full retirement age. If so, you are considered to be electing delayed retirement benefits. Electing early retirement benefits means that you will receive a reduced benefit, while electing delayed retirement benefits means that you will receive a delayed retirement credit and thus a higher benefit.

Disability benefits

Most people don’t expect to become disabled and are unprepared when they are unable to work due to illness or injury. The fact is that you are much more likely to become disabled than to die during your earning years. Because eligibility standards are strict, Social Security disability benefits may not offer the comprehensive protection you need. However, these benefits can help protect you and your family from financial devastation when you can’t work for a year or more. In general, to receive Social Security disability benefits, you must be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to last for at least 12 months or result in your death.

Benefits for family members

Some of your family members may be eligible for benefits based on your earnings record if you are receiving Social Security retirement or disability benefits. Benefits are generally paid to family members who relied upon your income for support. Benefits paid to family members are based upon your primary insurance amount (PIA) and are paid in addition to the benefit you receive. The following chart outlines who these family members might be, what benefits they may be entitled to receive, and the basic conditions they must meet to be eligible for those benefits:

Beneficiary	Minimum Age	Insured Status	Conditions	Amount of Benefit
Spouse of retired worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Worker must be fully insured. Spouse does not have to be insured	Worker must be receiving retirement benefits before spouse is eligible	50% of the worker’s PIA, subject to early retirement reduction, if applicable
Divorced spouse of worker	62 or earlier if caring for a dependent child (under 16 or disabled) who is eligible for child’s benefits	Marriage must have lasted at least ten years before final divorce date. Remarriage may affect benefit	Worker does not have to be receiving retirement benefits but must be 62 or older	Usually 50% of the worker’s PIA, subject to early retirement reduction, if applicable
Child of retired worker	No minimum age but must be under 18 or under 19 (in school). Disabled child can be over 18 if disability began before 22	Worker must be fully insured	Worker must be receiving retirement benefits before child is eligible. Child in school must be a full-time student and unmarried	Each child receives 50% of worker’s PIA. Family maximum, however, may limit this benefit

Family benefits end when the retired worker dies. However, at that time, family members may be eligible to receive Social Security survivor benefits.

Survivor benefits

If you die and you were currently or fully insured under Social Security, your surviving spouse, ex-spouse, children, or dependent parents may be eligible to receive Social Security benefits based on your earnings record. The following chart outlines those who may be eligible for benefits and under what conditions.

Beneficiary	Age	Insured Status of Worker	Conditions
Spouse of worker (no dependent child)	60 or over (or if disabled, 50 or over)	Fully insured	Must have been married to the worker for nine months before worker died (unless death was accidental or military-related) or be parent of worker’s natural or adopted child
Spouse of worker with dependent child	Any age	Fully or currently insured	Must be unmarried and not already eligible for widow(er)’s benefits
Divorced spouse of worker (no dependent child)	Age 60 or over (if disabled, age 50-59)	Fully insured	Must have been married to the worker for at least ten years
Divorced spouse of worker with dependent child	Any age	Fully or currently insured	Must be unmarried and not already eligible for widow(ER)’s benefits as a divorced spouse
Dependent child of worker	Age 18 or under, or 19 if full-time elementary or secondary school student. If child is disabled, can be over 18 if disability began before age 22	Fully or currently insured	Must be unmarried
Dependent parent(s) of worker	Age 62 or above	Fully insured	50% or more of the parent’s support must have been furnished by worker

How much will you receive from Social Security?

The amount of Social Security benefit you receive is based on your Social Security earnings record. Your earnings are averaged according to a formula and then indexed. The resulting figure is called your primary insurance amount (PIA). Once your PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

You retire at full retirement age
Your widow or widower is full retirement age
You are disabled

In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you retire early, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Mr. Jones retired at his full retirement age after working for many years. His PIA is determined to be $1,176. He will receive the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check will be $1,176. His wife also plans on retiring when she reaches her full retirement age. Since her own PIA is less, when she retires she will be entitled to 50 percent of his PIA, so her monthly benefit check will be $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Benefit	Requirements	Amount
Retirement	Full retirement age	100% of PIA
Retirement	62 or above, but less than full retirement age	PIA reduced by 5/9 of 1% for each month under full retirement age, and by 5/12 of 1% thereafter
Disability	None	100% of PIA
Spouse’s Benefit	Caring for dependent child	50% of PIA
	Full retirement age	50% of PIA
	Age 62 or above, but less than full retirement age	50% of PIA further reduced by 25/36 of 1% for each of the first 36 months under full retirement age, and by 5/12 of 1% thereafter
Child’s Benefit	Child of retired or disabled worker	50% of PIA
Child’s Benefit	Child of deceased worker	75% of PIA
Mother’s or Father’s Benefit	Child must be under 16 or disabled	75% of PIA
Widow(er)’s Benefit	Full retirement age	100% of PIA
Widow(er)’s Benefit	Age 60 or above, but less than full retirement age	Reduced; 71½% of PIA or more
Disabled Widow(er)’s Benefit	Starting at age 50-60	71½% of PIA
Parent’s Benefit	One dependent parent; two dependent parents	82½% of PIA; 75% of PIA (each)

Getting the most from the Social Security system

To get the most out of Social Security, you have to make some decisions. Deciding when to retire and begin receiving benefits is important because the age at which you elect to begin receiving benefits can greatly affect your monthly benefit and your overall lifetime benefit. You’ll also need to decide whether you want to work after you begin receiving benefits, and if so, determine how your wages will affect your benefit. Finally, if you are a business owner or a self-employed individual, you need to consider how you can minimize your Social Security payroll taxes.

Several benefit calculators are available on the Social Security website (ssa.gov) that can help you estimate your future retirement, disability, and survivor benefits. You can also visit the website to sign up for a my Social Security account that gives you access to your Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You may also call the Social Security Administration at (800) 772-1213 if you have questions.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Minimizing Your Social Security Payroll Tax/Self-Employment Tax

Posted on April 24, 2023 by fsykes - Business Owners, Social Security Benefits

What is it?

If you work in a job covered by Social Security, you pay Social Security payroll taxes on your earnings (your tax is matched by your employer). If you are self-employed, you pay a self-employment tax. These taxes finance Social Security benefits, including retirement, survivor’s, disability, and Medicare. Like many people, you might get more back in benefits than you pay in Social Security taxes, but not necessarily. For example, you may never need to use all of the benefits you’re entitled to, or you may be entitled to a greater benefit based on someone else’s earnings record. If you think that you will contribute much more in payroll taxes than you will receive in benefits, you can try to minimize the Social Security taxes you pay.

Understanding how Social Security payroll taxes and self-employment taxes finance your benefits

If you work in covered employment, Social Security payroll taxes are paid by both you and your employer

When you work for an employer, you pay a tax to finance Social Security benefit programs. This tax is called FICA (Federal Insurance Contributions Act), and your employer deducts the tax directly from your paycheck. For each contribution you make, your employer contributes an equal amount.

If you’re self-employed, you pay a self-employment tax on your earnings

If you’re self-employed, you’re both the employer and the employee of your business, so you’re required to pay a self-employment tax equal to the combined amount of payroll taxes employers and employees pay. You pay this tax when you file your annual tax return with the IRS or in estimated tax payments throughout the year.

The Social Security Administration (SSA) distributes your taxes to three funds

The taxes you pay are distributed to the three trust funds that pay benefits: the Old-Age and Survivors Insurance Trust Fund (OAS), the Federal Disability Insurance Trust Fund (DI), and the Federal Hospital Insurance Trust Fund (HI). Even though you contribute to three funds, the OAS and the DI are combined for taxation purposes. The resulting OASDI tax pays retirement (old-age), survivor’s, and disability benefits, while the HI pays Medicare benefits.

How much tax do you pay?

When you work for an employer–If you’re an employee who works in a job covered by Social Security, you pay a total tax of 7.65 percent to Social Security. Of this tax, 6.20 percent goes to the OASDI fund that pays retirement, survivor’s, and disability benefits, and 1.45 percent goes to the HI (Medicare) fund. However, not all of your earnings are subject to Social Security taxes; any income you earn over the maximum earnings limit (in 2023, $160,200) is exempt from the OASDI tax. This means that in 2023, the maximum OASDI tax you will pay (no matter what your income) is $9,932.40 (assuming a tax rate of 6.20 percent). The amount of HI tax you might pay is unlimited, because no portion of your income is excluded from this tax.

If you work for more than one employer during the year and earn more than the maximum earnings limit for the year, it’s possible that more than the maximum OASDI tax will be paid, because each employer is responsible for withholding the employee’s tax and paying the employer’s tax up to the maximum earnings base. If so, you’re entitled to a refund of your overpayment.

When you’re self-employed–If you’re self-employed, you pay a 15.3 percent self-employment tax on your self-employment income. Since 1990, 92.35 percent of all net earnings from self-employment has been taxable, unless the profession is not covered by the Social Security Act or unless the net income from self-employment is less than $400. Like wages from an employer, any income you earn over the maximum earnings limit is exempt, and no portion of your net earnings from self-employment is exempt from HI tax.
When you’re the employer–If you’re an employer who pays the wages of individuals covered by Social Security, you must contribute an amount equal to 6.20 percent of your employee’s salary to the OASDI fund (up to the maximum limit) and an amount equal to 1.45 percent of your employee’s salary to the HI fund.

You may also owe an additional Medicare payroll tax of 0.9% if your earnings (together with your spouse’s earnings if you file jointly) and/or net self-employment income exceed a certain threshold amount for your filing status.

Who may benefit from minimizing Social Security payroll taxes?

Business owners–If you own a business, you may benefit from minimizing payroll taxes for two reasons:

Business owners must pay the employer share of the FICA tax (7.65 percent of the wages of each covered employee).
Business owners often have higher than average earnings (and thus may fall into the category of people who do not collect as much in benefits as they pay in Social Security taxes).

A person eligible to receive simultaneous Social Security retirement benefits

You may be eligible for both a worker’s retirement benefit based on your own earnings (a benefit equal to 100 percent of your primary insurance amount, PIA) and a spousal retirement benefit based on your spouse’s earnings (a benefit equal to 50 percent of his or her PIA). When you elect to receive retirement benefits, you must apply for both types of benefits at the same time. You will receive a combination of your own benefit and your spousal benefit that equals the higher of the two. Your own benefit is always paid first.

Mary and Larry want to begin receiving retirement benefits. Mary is eligible to receive a worker’s retirement benefit based on 100 percent of her PIA. Her benefit will be $1,000. Larry is also eligible to receive a worker’s retirement benefit equal to 100 percent of his PIA. His benefit will be $450. However, Larry’s spousal benefit, based on Mary’s PIA (50 percent of her PIA, or $500), is more than the benefit he would receive based on his own PIA. So Larry will receive his own $450 benefit plus $50 of his spousal benefit. All the payroll taxes he’s paid over the years will not affect his own Social Security retirement benefit.

A person who has maximum earnings in each of the earnings years that will be used to calculate his or her Social Security retirement benefit

Usually, your 35 years of highest earnings are used to calculate your Social Security retirement benefit. If you have worked at least 35 years and earned as much as the maximum earnings amount in each of those years, you won’t be able to increase your Social Security benefit by working longer. However, if you do work longer (and you may have to, if you’re not yet eligible to receive retirement benefits), you must still pay Social Security taxes on your earnings.

Who may not benefit from minimizing Social Security payroll taxes?

Not everyone should consider using a strategy to minimize Social Security payroll taxes. In particular, the following people will likely not benefit from minimizing payroll taxes:

Individuals who have low lifetime earnings

The Social Security benefit formula favors individuals with low lifetime earnings, and they’re more likely to receive a large Social Security retirement benefit in proportion to the amount they contributed to the system through payroll taxes. In addition, if they want to increase their benefit, they may need to earn more and pay more taxes in order to increase their average indexed monthly earnings (AIME) on which their benefit is based.

Workers covered by Social Security whose spouses are not

If you’re covered by Social Security and elect to begin receiving benefits, your spouse may receive a spousal retirement benefit equal to 50 percent of your retirement benefit (at normal retirement age), even if he or she has never worked outside the home or in Social Security covered employment. This means that the return on your payroll taxes is increased by 50 percent. It’s likely that you will receive back in benefits what you have contributed through payroll taxes. In addition, even if you did attempt to minimize your payroll taxes, you may affect not only your benefit but your spouse’s benefit as well.

Strategies that may be used to minimize payroll taxes

The following table lists strategies that can be used to minimize payroll taxes and who might be able to use each strategy:

	Who Might Benefit from Using This Strategy
Strategy	Business Owner	Person Eligible to Receive Simultaneous Benefits	Person with 35 Years of Maximum Earnings
Reduce spousal compensation	Yes	Yes	No
Bunch earnings	Yes	No	No
Replace compensation with nontaxable fringe benefits	Yes	No	Yes
Reduce earnings in excess of the maximum earnings base	Yes	No	Yes
Create exempt family employment	Yes	Yes	No
Restructure business entity	Yes	No	Yes

Strengths

The money saved in payroll taxes can be invested elsewhere–If you save money in payroll taxes, you can take that money and invest it in another retirement plan.

Tradeoffs

When you minimize the amount of Social Security taxes that you pay, you may also limit the benefit you receive

Minimizing your Social Security taxes may limit your Social Security benefits or the benefits paid to your family members. For example, when you own a business and limit compensation paid to a spouse, he or she may not be eligible to receive Social Security disability benefits in the future. In addition, if you and your spouse divorce before 10 years of marriage, your spouse won’t be eligible for any benefits based on your earnings record. Any strategy you use to minimize Social Security payroll taxes should take into account your whole financial picture. Because this is complicated, you may want to consult a financial professional before undertaking the strategy.

Business planning strategies may raise the ire of the SSA or the IRS

The SSA and the IRS may closely scrutinize any questionable business reorganization. For example, if you decide you want to create exempt family employment, you must ensure that the family members you pay are doing real work for you and that you’re paying them a reasonable wage. Otherwise, the SSA or the IRS may disallow your business arrangement.

Tax considerations

Self-employment tax is deductible

When you file your federal income tax return, you can deduct one-half of the self-employment tax you paid that tax year. (Note, though, that you won’t be able to deduct any portion of the additional Medicare payroll tax if you’re subject to it.)

Strategies to minimize Social Security payroll taxes may affect your income taxes

Certain strategies you use to minimize your payroll taxes (such as restructuring a business entity) may also affect your income taxes. You should consult a tax professional or financial professional before undertaking any tax strategy.

Questions & Answers

If you hire an independent contractor, do you have to deduct Social Security payroll taxes from his or her wages?

No, but you should be sure he or she is actually working as an independent contractor. Does he or she work for other businesses besides yours? Do you have a contract with him or her? Does he or she set his or her own hours? If you can answer yes to these questions, then he or she may be an independent contractor who has to pay self-employment taxes. If he or she is an independent contractor, you’re not responsible for collecting Social Security taxes from his or her pay or paying the employer’s share of payroll taxes.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Estimating Your Social Security Benefits

Posted on April 19, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What is estimating your Social Security benefits?

Estimating your Social Security benefits is particularly important when you are planning for retirement, although you may be interested in estimating survivor benefits or disability benefits as well. When planning for retirement, you should neither overlook nor overstate the value of your Social Security benefits. Predicting the future of Social Security is difficult, because to keep the system solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said: “The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built.” Estimating your Social Security benefits now will not only help you plan an effective long-term retirement strategy, but it can also help you understand what benefits might protect your family if you were to die or become disabled.

Obtaining a benefits estimate

You can estimate your retirement benefit online based on your actual earnings record using the Retirement Estimator calculator on the Social Security website, ssa.gov. You can create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive. Other benefit calculators are also available that can help you estimate disability and survivor benefits. You can also sign up to view your Social Security Statement that contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Understanding how your benefit amount is calculated

Your Social Security benefits will be based on your average lifetime earnings, expressed as your primary insurance amount (PIA). Calculating your PIA is complicated because some factors used in the benefit formula change annually. Instead of calculating it yourself, it’s easiest to obtain a benefit estimate directly from the SSA (see preceding section).

However, knowing how your PIA is calculated may be useful in benefit planning. Currently, the two PIA calculation methods most frequently used are:

The simplified old-start benefit method–This method is used if age 62, disability, or death occurred prior to 1979. It averages actual (not indexed) earnings and uses a table to calculate the PIA.
The wage indexing method–This method has been used since 1979. Indexing earnings is a way of adjusting them to reflect changes in wage levels throughout years of employment. This ensures that your benefits reflect increases in the standard of living. In general, the wage indexing method calculates your PIA by indexing your lifetime earnings up to and including the year you turn 59. Then, your highest earnings for a specific number of years (usually 35) are averaged and a benefit formula is applied to this figure to calculate the PIA.

Two other benefit computation methods are less frequently used:

“Special minimum” benefit tables are used sometimes to compute benefits payable to some individuals who have long periods of low earnings and who have at least 11 years of coverage.
Flat-rate benefits are provided to workers (and to their spouses or surviving spouses) who became age 72 before 1969 and who were not insured under the usual requirements.

How to calculate your PIA using the wage-indexing method

The wage indexing method can be used to calculate retirement, survivor’s, and disability benefits. However, the method used to calculate disability benefits is slightly different. The following discussion applies only to calculating your PIA for retirement and death benefits.

Follow these steps to calculate your PIA:

Count the number of years elapsed between 1951 (or the year you turned 22, if later) and the year you turned 61. If you were born in 1929 or later, this number will be 40.

Example(s): Peter retired from his job in 1992. He was 62. He turned 22 in 1952, so count the number of years between 1952 and 1991 (the year he turned 61). Forty years have elapsed.

Use the number of elapsed years to determine the number of benefit computation years. To do this, subtract five from the number of computation elapsed years. This figure will be used to calculate your average indexed monthly earnings (AIME). If you were born in 1929 or later, this number will be 35.

Example(s): Peter’s computation elapsed year figure is 40. 40-5=35. So, Peter’s benefit computation year figure is 35.

Use your earnings record to calculate your indexed earnings. To do this, use the appropriate table to determine what the indexing average wage was or will be in the year you turn 60. Then, look to see what the indexing average wage was in the year you are indexing. These figures become part of an indexing ratio applied to each year of earnings starting with 1951 and ending with the year you turn 59. (Earnings before 1951 are generally disregarded. Earnings in the year you turn 60 (your indexing year) and earnings in all later years are considered in calculating your PIA, but they are not indexed.) The indexing ratio can be expressed as the actual earnings in the year being indexed multiplied by the indexing average wage in the year you turned 60 divided by the indexing average wage in the year being indexed. The result will equal your indexed earnings for the year being indexed.

Example(s): Peter started working in 1951 and retired in 1992. For each year starting with 1951 and ending with 1989 (the year he turned 59), calculate his indexed earnings. His indexing year is 1990 (the year he turned 60). For example, Peter’s earnings in 1965 were $2,000. In 1965, the indexing average wage was $4,658.72. In 1990, the indexing average wage was $21,027.98. Calculate his 1965 indexed earnings:

$2,000 multiplied by $21,027.98 divided by $ 4,658.72 = $9,027.36

Tip: Actual earnings are earnings credited to an individual’s Social Security record. However, each year’s actual earnings are subject to a maximum earnings limit. If your earnings for the year you are indexing exceed the maximum limit, then you must substitute the maximum earnings limit amount for your actual earnings amount in the ratio.

Example(s): In 1965, the maximum earnings limit was $4,800. Had Peter’s actual earnings exceeded that amount, he would have replaced his actual earnings figure in the ratio with $4,800 to calculate his indexed earnings for 1965.

Once you have indexed your earnings for each year you have worked before age 60, you will be able to use those figures to calculate your average indexed monthly earnings (AIME).

Calculate your AIME by selecting your highest earnings for the benefit computation years (including any earnings not subject to indexing). Add these up and divide by the total number of months elapsed during these years.

Example(s): Peter had 39 years of indexed earnings and two years of earnings (1990 and 1991) not indexed but included in the calculation. Select his 35 highest earning years. The earnings for these years total $950,000. Divide this figure by 420 months (35 x 12). His AIME is $2261.90.

Calculate the PIA for the year you attain age 62 by applying percentages to certain dollar amounts of the AIME. The percentages are fixed, but the dollar amounts (called bend points) are adjusted each year for inflation.

Example(s): Peter attained age 62 in 1992. His PIA would be calculated using 1992 bend points–90 percent of the first $387 of his AIME, and adding 32 percent of the AIME in excess of $387 through $2,333, and adding 15 percent of the AIME in excess of $2,333. So, Peter’s PIA is calculated to be the sum of $348.30 (90 percent of $387) plus $599.65 (32 percent of $1,873.90) or $947.95, rounded to the next lower multiple of 10 cents, $947.90.

Bend points make calculating your future PIA difficult because the bend points for each year are only published on or before November 1 of the preceding year. For 2021, the bend points are $996 and $6,002.

Adjust your PIA to account for changes in the cost-of-living allowance (COLA) yearly.

Example(s): If Peter’s PIA was $947.90 when he retired in October 1992, then his PIA was adjusted for COLA in December 1992, and his January 1993 benefit check reflected the change.

Using your PIA to determine your benefit amount

Once the PIA has been calculated, all your benefits (and those of your family members who are dependent upon your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once you become eligible.

Your maximum benefit may be payable if:

You retire at full retirement age
You are a widow or widower who is at least full retirement age
You are a disabled worker

In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For example, if you elect to receive early retirement benefits, your maximum benefit will be reduced by a certain percentage for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be expressed as a percentage of your PIA.

Example(s): Mr. Jones retired at age 66 (his full retirement age) after working for many years. His PIA was determined to be $1,176. He receives the maximum retirement benefit (100 percent of his PIA) so his monthly benefit check is $1,176. His wife retired at age 66 as well (her full retirement age). Since her own PIA was less, she decided to base her retirement income on her husband’s PIA. She is entitled to 50 percent of his PIA, so she receives a monthly benefit check of $588.

The following chart summarizes the relationship between your PIA and your eventual benefits:

Factors that can increase or decrease your benefit

Early retirement

If you elect to receive retirement benefits early (before full retirement age), your benefit will be reduced proportionately. You can elect to receive retirement benefits as early as age 62. For each month of early retirement, your total benefit will be reduced by 5/9 of 1 percent, up to 36 months, and by 5/12 of 1 percent thereafter. For example, if you elect to receive retirement benefits at age 62 and your full retirement age is 66, then you would receive approximately 25 percent less each month than you would at age 66.

Delayed retirement

If you delay receiving retirement benefits past full retirement age, you will receive a higher benefit when you retire. Late retirement may increase your average earnings (which may, in turn, increase your benefit). You will also receive a special delayed retirement credit. This credit is figured as a percentage of your Social Security benefit and is paid in addition to your regular benefit amount. It does not affect your PIA upon which your benefit is based.

This credit varies depending on the year in which you were born and how many months or years after full retirement age you retire (up to the maximum age of 70). For example, if your full retirement age is 67, you will earn an extra 8 percent of your benefit for every year you delay retirement up to age 70. This means that if you delay receiving your retirement benefit until age 70, your benefit payment will be 24 percent greater than it would have been if you began receiving retirement benefits at age 67.

Earnings during retirement

Any income you earn after you retire must be reported to the Social Security Administration and may temporarily reduce your retirement benefit if you have not yet reached full retirement age. However, some of your annual earnings are exempt and won’t affect your benefit.

Simultaneous benefits

Occasionally, you may be entitled to receive benefits based not only on your earnings record, but on someone else’s as well. This often happens when a married couple retires.

Example(s): Mr. Jones is not planning on retiring and receiving Social Security retirement benefits until he is 68. His PIA is $1,176. His wife, who is 63, wants to retire now, but she can’t begin receiving a spouse’s retirement benefit until her husband begins receiving his retirement benefits. However, since she is already over the age of 62, she can receive retirement benefits based on her own PIA. Her benefit, adjusted for early retirement, will be $400. Later, when her husband retires, she can receive her own retirement benefit and a spouse’s benefit of $188, the difference between her own worker’s benefit ($400) and the spouse’s benefit she would have received based on 50 percent of her husband’s PIA ($588).

A family maximum benefit applies

Your family may receive benefits based on your earnings record. There is, however, a limit to the amount of monthly benefit that can be based on an individual’s Social Security record. The limit varies but generally ranges from 150 to 180 percent of your PIA. Benefits to family members may be reduced if they exceed the family maximum. The formula used to compute the family maximum is similar to that used to compute the PIA.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Use of Government Benefits

Posted on April 10, 2023 by fsykes - Family Benefits, Social Security Benefits, Widow Benefits

What is it?

Introduction

If you’re like most people, you feel you should take steps to make sure that your spouse and other survivors will have sufficient resources if you die. If you are young and healthy, however, you may not put too much energy into worrying about what will happen to your loved ones if you die prematurely. But you may also realize that anything can happen to anyone, that you’re not immune from unexpected tragedy, and that you should be prepared for the worst. To minimize the risk of loss associated with premature death and to plan for the future of their survivors, most people purchase some form of life insurance. Others self-insure by saving or earmarking existing assets, while still others use some combination of life insurance and self-insurance. Another way to provide adequate resources for your survivors is through government benefits.

Social Security survivor benefits

For many people, the major source of government benefits for your survivors will be Social Security. In addition to regular Social Security benefits that are payable to most retirees, the federal government also provides survivor benefits payable under certain conditions to specified survivors of a retired or nonretired employee who dies. Generally, the survivors who may be entitled to receive these benefits at your death include your spouse, your former spouse, your dependent children, and your dependent parents. Usually payable in regular monthly installments, these survivor benefits will vary, based on your average lifetime earnings, the recipient(s) of the benefits, and other factors. Whatever the size of the benefits, Social Security survivor benefits provide a valuable means of financial support for the people you care about if you meet with an untimely end.

As with Social Security retirement benefits, your survivors’ eligibility for survivor benefits will depend on whether you are even part of the Social Security system. That is, you need to have contributed at least some of your earnings through payroll tax deductions to the federal government’s Social Security fund. As you contribute to the fund, you accumulate units of credit, and generally, you have to earn a certain number before your survivors can be eligible for benefits. Social Security survivor benefits are, in effect, a kind of pension or entitlement program that you become part of by paying into a fund. In this sense, the survivor benefit system differs fundamentally from regular life insurance that you buy, even though both are designed to provide funds that your survivors can draw on if you die prematurely.

Lump-sum death benefit

If you die fully or currently insured, a one-time lump-sum death benefit of a maximum of $255 is payable at your death if you are survived by a spouse who was living in the same household as you at the time of your death or by a spouse or dependent children eligible to receive Social Security benefits for the month of your death based on your earnings record. In addition, the death benefit may be payable under other circumstances as well.

While Social Security survivor benefits and the lump-sum death benefit can provide supplemental resources for your survivors, they will not be sufficient by themselves in most cases. You will probably need to take additional steps to ensure that your survivors have enough money to carry on and meet their various expenses if you die prematurely. Among others, these may include personal life insurance and earmarking existing assets as a kind of personal death benefit fund.

You should consult your financial planner and other resources to determine the particular strategy or set of strategies most appropriate for your circumstances.

What other types of government benefits are there?

Benefits for federal government employees

If you are a federal government employee who qualifies in terms of length of service, your death may trigger benefits to certain of your survivors under either of two retirement systems for federal employees: the Civil Service Retirement System (CSRS) or the Federal Employees’ Retirement System (FERS). The benefits, which may be subject to restrictions based on whether you are also eligible for Social Security, are generally payable either in a lump sum or in regular installments (known as a survivor annuity). They are also payable regardless of whether you die before or after retirement.

Benefits for military personnel

If you are in the military, your survivors may be eligible for survivor benefits under the Survivor Benefit Plan in the event of your death. This plan provides survivor benefits for eligible widows, widowers, and dependent children of retired military personnel. You may be eligible for the Survivor Benefit Plan if you are married or have a dependent child when you become entitled to retired pay (although you may elect not to participate). The plan may provide for a reduction in benefits if some of your surviving beneficiaries are also eligible for Social Security benefits.

Your survivors may also be eligible for dependency and indemnity compensation, a death pension, and other benefits.

Railroad survivor benefits

If you are a railroad employee or a retired railroad employee, your survivors may be eligible for one or more railroad survivor benefits if you die. Specifically, the Railroad Retirement Act may provide survivor annuities for certain of your survivors. You must have completed 10 years of railroad service and have had a current connection with the railroad industry at the time of your death. Your widow(er), surviving divorced spouse, or remarried widow(er) may receive an annuity based on such factors as age, disability, and whether he or she is caring for a child of yours. Subject to certain restrictions, other railroad survivor annuities may be payable to your dependent children, grandchildren, and parents.

Workers’ compensation

If you die as a result of a job-related injury or illness, your survivors may be entitled to receive workers’ compensation survivor benefits based on your wages (subject to minimums and maximums) and on the number of your surviving dependents. Your survivors may also receive money for your burial expenses. Benefits are usually payable to your surviving spouse as long as he or she does not remarry, and to your dependent children up to a certain age.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Supplemental Security Income (SSI) Benefits

Posted on April 5, 2023 by fsykes - Social Security Benefits

What is Supplemental Security Income (SSI)?

The Supplemental Security Income program (SSI) is a cash assistance program designed to provide minimum income to people who are aged, blind, or disabled. Although your eligibility for Social Security retirement and disability benefits is based on how long you’ve worked and how much you’ve earned during your lifetime, your eligibility for SSI is based on financial need. If your resources and income fall below certain levels, you may be able to receive SSI benefits. Often, people who get SSI also get other government assistance as well, such as food stamps and Medicaid. However, SSI is a program of last resort; before applying for it, you must file for all other benefits for which you may be eligible.

Who is eligible for SSI benefits?

The following individuals who have income and resources less than a certain limit may be eligible for SSI benefits:

An aged person (age 65 or over).
A blind person regardless of age: A blind person is defined as a person whose vision, with use of a corrective lens, is 20/200 or less or who has tunnel vision of 20 degrees or less.
A disabled person regardless of age: A disabled person is defined as a person who has a medically determinable physical or mental problem that keeps him or her from working and that is expected to last for a year or more or end in death. The definition for a disabled child differs slightly, since most children don’t work. A child will be considered disabled if he or she is not working and has an impairment that is as severe as one that would disable an adult. The medical requirements for disability and the process used to determine disability are the same for SSI and the Social Security disability program.

Disabled Social Security and SSI beneficiaries have the chance to participate in vocational rehabilitation, employment, or other support services from approved providers. Most beneficiaries become eligible for the SSA’s Ticket to Work Program when they start receiving Social Security disability benefits or SSI benefits based on disability. This program is free and voluntary, and provides support services that will help you return to work. Other work incentives are also available.

How much money can you make and still get SSI?

Income limit

You can have a certain amount of income and still be eligible for SSI. Under SSI, income includes earned income (earnings from wages and self-employment), unearned income (e.g., retirement benefits, pensions, and interest), in-kind support (e.g., gifts of food, shelter, and clothing), and deemed income (income from a spouse, parent, or sponsor used to compute your benefit). Not all of your income is countable, however. For example, when figuring your eligibility for benefits, some income is excluded, including (but not limited to) the following types of income:

The first $20 of most income received in a month
The first $65 a month earned from working and half the amount over $65 (if there is no unearned income, $85 a month of earned income plus half the amount over $85)
Food stamps
Most food, clothing, and shelter received from private nonprofit organizations
Most home energy assistance
Earned income you use to pay for items or services you need to work if you are disabled
Earned income you use to pay for expenses caused by working if you are blind

If only one member of a couple living together in the same household is eligible for SSI, the ineligible member is considered in the calculation. If an unmarried child under 18 is living at home, some of the parents’ income may be used to determine the child’s eligibility.

Income limits are subject to annual cost-of-living related increases.

For more specific information on SSI income limits and program rules, visit the Social Security Administration’s website, ssa.gov.

Resources limit

You cannot have resources (cash or other liquid assets and real or personal property) in excess of $2,000 if you are an individual with no spouse or in excess of $3,000 if you have a spouse. Everything you own, however, is not considered a resource. For example, these (and other) things are not considered resources:

The home you live in and the land it’s on if you own it as your principal residence
Personal household goods
Your car, when used to provide necessary transportation
Life insurance policies with a combined face value of $1,500 or less
Burial plots for you and members of your immediate family
Up to $1,500 in burial funds for you and up to $1,500 for your spouse
Certain items you use for work or to earn income if you are blind or disabled
Up to $100,000 of funds in an Achieving a Better Life Experience (ABLE) account

For example, these things are considered resources:

Real estate (other than your primary residence)
Cash
Bank accounts
Stocks and bonds

If only one member of a couple is eligible, the couple’s resources are still considered together, and the couple’s limit still applies. If an unmarried child under age 18 is living at home and the parents’ resources exceed $3,000 (for a couple), the excess can be included with the child’s income to determine eligibility.

How much money will you receive from SSI?

How much you receive will depend on where you live

Your basic federal SSI benefit will be the same in Georgia as it would be in Idaho, because your benefit is based on the same criteria everywhere. The maximum federal benefit for 2023 is $914 for an eligible individual and $1,371 for an eligible individual with an eligible spouse. However, you might receive more than this because most states add money to your basic benefit. This supplement will vary because of differences in regional living costs and state-defined eligibility criteria. Your state may send you the supplement separately or combine it with your federal benefit. To find out if your state pays supplementary benefits and how much it pays, call the Social Security Administration at (800) 772-1213. In some cases (for example, if your family has money coming in besides the SSI benefit) you may get less than the basic benefit.

Some months, you may not receive a benefit check

Your eligibility for SSI benefits is determined on a month-by-month basis. Your countable income is figured by adding up all your earned and unearned income that can’t be excluded by law or under the Social Security Act. Then, that amount is compared to the federal benefit rate. If the FBR is less than your countable income, you won’t receive a federal SSI check that month.

Your federal benefit amount is based on your monthly income two months ago

Your monthly payment is usually based on your countable income from the second month before the current month. This countable income is subtracted from the current month’s FBR to determine your SSI payment.

If you are eligible for a state supplement payable with your federal check, the supplement will be calculated by subtracting any excess countable income. In some months, you may be eligible only for the state supplement. States may vary payment amounts based on living arrangements or geographical area and may disregard some income when calculating payments.

Other factors that will affect your SSI benefit

Federal and state maximum benefits: You can’t receive a benefit check in excess of federal and state maximum benefits. Each state has its own maximum benefit.
Your living arrangements: Your basic SSI payment may be reduced by up to one-third if you live in someone else’s household and receive maintenance and support from that person. Maintenance and support is food, clothing, or shelter you receive and for which you do not pay.

While you are receiving SSI, what other benefits can you receive?

Medicaid and Medicare assistance: You can probably get Medicaid to help you pay health care expenses. If you get Medicare because you are age 65 or over, your state may assist you with paying your Medicare premiums if you have low income and few resources.
Social Services: You may be eligible for social services provided by the state, city, or county, such as homemaker services, meals, and transportation.
Interim payments: Some states make interim payments to individuals waiting for a decision on eligibility for federal payments.
Food stamps: You may be eligible for food stamps. If everyone in your household receives SSI, Social Security will help you prepare the application.
Social Security: If you qualify, you may be eligible for Social Security retirement or disability benefits as well as SSI. However, the income you receive from Social Security benefits will be used to determine your eligibility for SSI payments.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Claiming Survivor’s and Death Benefits

Posted on April 3, 2023 by fsykes - Social Security Benefits, Widow Benefits

What is it?

After the death of your spouse, you may be eligible to receive survivor’s benefits and death benefits from government sources, from your spouse’s employer, and from retirement plans.

Social Security benefits

Social Security survivor’s benefits

If your spouse (or former spouse) was self-employed or employed in a job where he or she paid Social Security payroll taxes, you may be eligible to receive Social Security survivor’s benefits. The following table illustrates the eligibility requirements for survivor’s benefits:

Beneficiary	Age	Insured Status of Worker	Conditions That Must Be Met
Spouse (no dependent child)	60 or over (50 or over if disabled)	Fully insured	Has not remarried before age 60 (age 50, if disabled) unless subsequent marriage ended, and must have been married to worker at least nine months just before worker died (unless death was accidental or military-related), or be the parent of the worker’s natural or adopted child
Spouse of worker (with dependent child who is entitled to child’s benefits)	Any age	Fully or currently insured	Has not remarried unless subsequent marriage ended, and is not already eligible to receive a larger benefit in another category
Divorced spouse of worker (no dependent child)	60 or over (50 or over if disabled)	Fully insured	Has not remarried before age 60 (or if disabled, before age 50), unless subsequent marriage ended, and was married to worker for at least 10 years
Divorced spouse of worker (with dependent child entitled to child’s benefits)	Any age	Fully or currently insured	Has not remarried (unless subsequent marriage ended) and is not already eligible for larger benefit in another category

How much you receive depends on your spouse’s lifetime earnings, how many other members of your family are receiving benefits, and what beneficiary category you fit into.

The amount of Social Security survivor’s benefit you receive will be reduced (even to zero) if you have earnings over the annual exempt amount, unless you are disabled. If you are under normal retirement age, your Social Security benefit will be reduced by $1 for every $2 you earn over the annual exempt amount (in 2012, $14,640).

Social Security death benefit

If you were living in the same household as your spouse at the time of his or her death and your spouse was fully or currently insured for Social Security benefits, you may be entitled to receive a $255 lump-sum death benefit from the Social Security Administration.

Who to contact for more information

Social Security benefits are not automatic; you must apply for them. Although the Social Security Administration (SSA) suggests that you apply for survivor’s benefits in the month of your spouse’s death, benefits may be paid retroactively. To apply for the death benefit, call the Social Security Administration (SSA) at (800) 772-1213 or contact your local SSA office.

Federal employees’ survivor benefits

Federal Employees Retirement System (FERS) benefits

If your spouse or ex-spouse was a civilian federal employee covered by FERS, you may be eligible to receive a survivor’s benefit. Benefits can be paid both to survivors of workers who die before retirement (whether employed by the government at the time of death or separated from government service but entitled to a deferred annuity) and to survivors of retirees (unless the retiree and his spouse elected not to pay for the survivor annuity). Benefits may be paid in the form of a monthly annuity, a lump-sum cash payment, or both, depending on how long the employee worked for the government and whether he or she was currently or formerly employed at the time of his or her death. The following table illustrates the eligibility requirements for FERS survivors’ benefits:

Beneficiary	Age	Conditions
Surviving spouse of worker employed at time of death	Any age	Must have been married to employee for at least nine months or must be the parent of a child of the marriage, or employee’s death must have been accidental
Surviving ex-spouse of worker employed at time of death	Any age	Must have been married to the employee for at least nine months, have not been remarried before age 55, and have a court order or approved settlement agreement providing that survivor annuity will be paid
Surviving spouse of retired worker	Any age	Must have been married to the employee for at least nine months or must be a parent of a child of the marriage, or the death of the retired employee was accidental and employee and spouse did not waive right to a survivor’s annuity
Surviving ex-spouse of retired worker	Any age	Must have been married to worker for at least nine months, have not been remarried before age 55, and have a court order or approved property settlement agreement. These conditions can be waived if worker elected to provide his or her former spouse with an insurable interest annuity at the time he or she retired

Civil Service Retirement System (CSRS) benefits

If your spouse or ex-spouse was covered under CSRS, you may be eligible to receive a survivor’s annuity paid until you die or remarry (unless you remarry after age 55). In general, eligibility requirements are the same as those under FERS, with one notable exception. While a former spouse of a FERS employee separated from government service may be entitled to a survivor’s annuity even if that employee dies before reaching retirement age, the former spouse of a CSRS employee will not be.

Survivor’s benefits for state government employees

Some state employees are covered under retirement programs (similar to CSRS) that serve as alternatives to Social Security. Instead of paying Social Security taxes, they contribute a portion of their paychecks (matched by the government employer) to a money market fund or investment fund that grows until retirement and then is paid out in the form of an annuity. If your spouse was a state or local employee, check with his or her employer for information about survivor’s benefits.

Social Security benefits may affect your FERS or CSRS benefit

Survivors’ benefits you receive under FERS or CSRS may reduce (or be reduced by) benefits you receive from Social Security.

Who to contact

Contact the Office of Personnel Management (OPM), 1900 E Street NW, Washington DC 20415, or call (202) 606-1800 to locate your nearest regional office. You can also access information (including benefit handbooks) via the Internet at the OPM website (www.opm.gov).

Military service members survivor’s and death benefits

Death gratuity payments

Survivors of members of the military who have been killed while on active duty may receive a $100,000 death gratuity payment fully tax free.

Burial-related expenses

Burial allowances are available to the survivors of servicemembers who die on active duty and to the survivors of some other veterans. The government provides free markers and headstones to some veterans, as well as some final honors such as flags, presidential certificates, and an honor guard. Almost all veterans are eligible for burial in a national cemetery.

Dependency and Indemnity Compensation (DIC)

Dependency and Indemnity Compensation (DIC) provides a monthly pension to widows, widowers, dependent children, and low-income parents of some deceased active duty servicemembers and some disabled veterans (if disability was service-related). Beneficiaries receive a fixed monthly benefit that usually increases annually with inflation. If you need nursing home care or are housebound, DIC will also pay you an extra benefit. Receiving money from DIC will decrease the amount that you receive from another benefit plan, the Survivor’s Benefit Plan (SBP), but is not affected by (and does not affect) Social Security.

The Survivor’s Benefit Plan (SBP)

The SBP provides a monthly lifetime annuity payment to qualified widows, widowers, dependent children, and some ex-spouses who are survivors of a retired military servicemember. A retired servicemember automatically is covered by the SBP when he or she retires after 20 years of service, but may elect reduced coverage or no coverage for his or her survivors, if his or her spouse concurs. The annuity you will receive as a survivor depends on the amount your spouse designated when he or she retired.

Death pension

Available to qualified survivors of low-income veterans, the death pension provides a fixed monthly benefit that usually increases annually with inflation. The amount of monthly benefit a survivor receives depends on the survivor’s other income and whether other dependents reside with the survivor.

Educational assistance

Monthly educational assistance payments can be made to spouses and children of disabled veterans who die. These payments can help pay for college or university classes, secondary school programs, remedial education, apprenticeships, and other courses of study.

Home loans

The widow or widower of a service member who died on active duty or as a result of a service-connected illness or injury may qualify for a VA home loan to purchase a primary residence. The loan is issued by a financial institution but guaranteed by the federal government. The primary advantages of VA home loans are that they often require no down payment and because the loan is partially guaranteed by the federal government, no mortgage insurance payments.

Federal job preference

Survivors of servicemembers who died on active duty or as a result of a service-connected disability may receive ten extra points on the results of a competitive examination for a federal job.

Health insurance

The spouse or dependent child of a veteran who died as a result of a service-connected disability or who died on active duty may purchase government-backed health insurance called CHAMPVA. This health insurance costs less than insurance available from private sources because it is government-subsidized.

Who to contact to apply for benefits

For information or to apply for benefits, call the Department of Veterans Affairs (VA) at (800) 827-1000 or contact your nearest VA office.

Qualified benefit plans and IRAs

Qualified benefit plans

When your spouse dies, call his or her employer or plan administrator to ask about what benefits may be payable to you. Your spouse may have contributed to one or more plans designed to provide retirement income, including profit-sharing plans, 401(k) plans, 403(b) plans, stock option plans, Keogh plans, and thrift/savings plans. He or she may also have assets in a traditional defined benefit pension plan that was funded entirely through employer contributions. Different rules surround different plans, but in general, qualified pension plans must provide both pre-retirement survivor annuities and post-retirement survivor annuities. This means that even if your spouse died before retirement and was not yet vested in a qualified pension plan, you may be entitled to receive a survivor annuity (or other payment form) unless you waived that right at some point.

IRAs

If your spouse owned an IRA and named you as the beneficiary, you have several options in taking funds from the IRA. Your options include taking the proceeds of the IRA as a lump-sum distribution or rolling them over to your own IRA. If you elect a lump-sum distribution of your spouse’s IRA, you will not owe the normal 10 percent premature withdrawal penalty tax, even if you are under age 59½. However, if the funds come from a traditional IRA, the amount you receive will generally be included in your taxable income (qualifying distributions from Roth IRAs are tax free). Rolling over the IRA proceeds to your own IRA provides you with a great deal of flexibility and control. You can name your own beneficiary or beneficiaries, and can postpone taking distributions (distributions from traditional IRAs, though, generally must begin after age 70½). You should weigh your options carefully, using your income needs, expected return on investments, and tax consequences as a guide.

Questions & Answers

Does the former spouse of a federal employee who died while employed under FERS have any claim to his or her pension benefits?

Possibly. It depends on the terms of the divorce. A former spouse may have been awarded a court-ordered survivor’s annuity or may have the rights to an insurable interest annuity if his or her former spouse elected to provide one. He or she may also be eligible for Social Security survivor’s benefits based on the Social Security earnings record of his or her former spouse.

What should you do if you receive Social Security checks in your spouse’s name after his or her death?

Don’t cash them. The law requires that these checks be returned. Send them back to the Social Security Administration right away. For information on the procedure to follow, call the SSA at (800) 772-1213.

If you are already receiving Social Security benefits and your spouse dies, how will your spouse’s death affect your benefit?

An individual entitled to Social Security benefits may be eligible to receive a greater benefit as a widow than he or she would as a retiree. If so, then his or her Social Security benefit may be adjusted automatically.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Retirement Earnings and Social Security

Posted on March 29, 2023 by fsykes - Social Security Benefits

What is it?

You have finally reached your long-awaited retirement. If you have saved and planned properly, this will be a time of financial independence for you. There are some other considerations that you should keep in mind when you retire. If you choose to work after retirement, you should be aware of the effect it will have on your Social Security benefits. You should also keep abreast of the required minimum distribution rules and their effect on your retirement investments.

Retirement earnings and Social Security

Reduction of Social Security benefits based on earnings

If you need extra income during retirement or if you find that a retiree’s life is boring, you may want to consider working. However, be aware of the effect that working during retirement has on your Social Security benefits. The Social Security Administration gives you the opportunity to work and receive retirement benefits so long as your earnings do not exceed the annual earnings limit, a limit that applies only if you are under “full retirement age,” which varies between 66 and 67 depending on your year of birth. After you reach your full retirement age, you can earn as much as you want without affecting your Social Security retirement benefit. In 2022, you can earn up to $19,560 if you have not yet reached full retirement age. If you earn more, $1 in benefits will be withheld for every $2 you earn over that amount. However, a special limit applies during the year in which you reach normal retirement age (up to, but not including, the month you reach normal retirement age). In 2022, this limit is $51,960. If you earn more, $1 in benefits will be withheld for every $3 you earn over that amount.

Evaluate the pros and cons of exceeding earnings limit

It might seem like a good idea to always keep your earnings below the Social Security Administration’s limits. However, there may be times when you might want to consider taking a job where your earnings exceed those limits. While you are subject to withholding for your higher earnings, your overall income may be greater because of those same higher earnings. Furthermore, because you pay Social Security taxes when you work, Social Security reconfigures your benefits to take into account the extra earnings.

Phillip, age 63, receives $1,000 in monthly Social Security benefits for a total of $12,000 per year. In 2021, Phillip takes a job that pays $30,960 per year, $12,000 over the annual earnings limit of $18,960. Social Security withholds $1 for every $2 that Phillip earns over the limit or $6,000. Phillip still receives $6,000 from Social Security ($12,000 – $6,000 = $6,000). He has a total income of $36,960 ($30,960 in earnings + $6,000 in Social Security). Although he has lower monthly Social Security benefits, Phillip’s overall income is greater than it would be without the job because of his higher earnings.

If you earn other income during the year, then you might have to pay income tax on part of your Social Security benefits if your total income exceeds a certain base amount.

Other facts regarding Social Security

There is a special rule regarding the annual earnings limit during your first year of retirement. If you retire midyear, you may find that you have already earned more than the annual earnings limit. The rule allows you to receive full Social Security benefits for any whole month that you are retired despite the fact that you exceed the annual earnings limit.
You will be subject to penalties if you fail to report retirement earnings.
If you receive Social Security benefits as a family member, your earnings will affect only your own benefits.

Required minimum distributions (the age 72 rule)

If you are retired, you might still be enjoying the tax-deferred status of your investments held in retirement plans. However, if you have a traditional IRA, you are required to begin taking required minimum distributions for the year in which you reach age 72. If you fail to take the minimum distribution, you are subject to a 50% penalty on the amount that should have been distributed. Required minimum distributions generally must be made from employer-sponsored retirement plans after age 72. However, if you retire from your employer after age 72, you may be able to delay taking required minimum distributions from that employer’s plan until after you’ve retired.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Timing Your Earnings in Retirement to Optimize Your Social Security Retirement Benefit

Posted on March 21, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What is this strategy?

If you work after you begin receiving Social Security retirement benefits, all or part of your retirement benefit may be withheld if your earnings exceed the retirement earnings test exempt amount. However, excess earnings won’t affect your benefit once you reach full retirement age, and it’s possible to time your earnings in retirement in order to optimize your benefit before full retirement age.

If you’re under full retirement age and earn more than the annual retirement earnings test exempt amount by working after you retire, you may be considering timing your earnings in retirement.

Remember, though, if your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the Social Security Administration recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

How to do it

Postpone your earnings

The easiest way to avoid having all or part of your Social Security benefit withheld due to excess earnings is to postpone your earnings. You can postpone your earnings in two ways:

The first way is to determine when you actually work and earn income: If you’re working for an employer, your wages are counted as income in the year you earn them. Because earnings at full retirement age or later will never reduce your Social Security retirement benefit, you might postpone working after retirement until you reach full retirement age if you expect to have excess earnings.

The second way is to postpone when you receive your earnings: If you’re self-employed, you can limit the effect of excess earnings on your retirement benefit by postponing when you receive your earnings. This is because earnings from self-employment are treated as earnings in the year they’re received.

Bunch your earnings

If you believe that all of your retirement benefit in one year will be withheld due to excess earnings, you may be able to bunch your earnings for that year in order to avoid affecting your benefits the following year.

Bunching your earnings from self-employment may help you avoid having your Social Security benefit withheld, but you should consider the overall tax implications. For example, if your earnings in one year are high enough, you may be subject to the additional Medicare payroll tax and the Medicare investment income surtax, or even be pushed into a higher income tax bracket, among other things. Consult a tax professional for help with your individual tax situation.

Time the start of benefits

Special rules apply to excess earnings during the first year of retirement. You might benefit from electing to begin receiving retirement benefits during a year in which you expect your earnings to be particularly high. During the first year you receive retirement benefits, if your wages from an employer are more than the annual retirement earnings test exempt amount, your retirement benefit will be reduced by the lesser of: (1) the reduction in benefits that would occur if the annual test applied, or (2) the benefit you received in the month or months that you earned more than 1/12th of the annual retirement earnings test exempt amount.

Consider the following case: Jeff retires on September 30 at age 62. Before he retires, he earns $80,000 during the year. In October, he begins working part-time and earns $1,000 per month for the last three months of the year. Even though his earnings for the year greatly exceeded the annual retirement earnings test exempt amount for that year, Jeff still receives a full Social Security benefit for October, November, and December. This is because his earnings in those months did not exceed 1/12 of the annual earnings test exempt amount for that year. However, beginning the following year, the annual retirement earnings test amount will apply to him because he will be beyond his first year of retirement.

This monthly test for excess earnings only applies if your wages are from an employer. If you are self-employed, the excess earnings test applies in a different manner.

Strengths

You can avoid having part or all of your Social Security retirement benefit withheld

By postponing or bunching your earnings in retirement, you may be able to avoid earning more than the retirement earnings test exempt amount. By timing when you first begin receiving Social Security retirement benefits, you may be able to lessen the impact of earned income on those benefits. But see Tradeoffs.

Tradeoffs

The Social Security retirement benefit you keep may not be enough to offset the earnings from working that you lose

Phillip (age 63) receives a Social Security retirement benefit of $1,000, or $12,000 per year. Phillip earns $33,240 in 2023, exceeding the earnings limit of $21,240 by $13,000, so his benefit is reduced by $1 for each $2 over the earnings limit, a total of $6,500 in benefits. Phillip’s income for 2023 is:

Social Security retirement benefit	$6,500
Employment earnings	$33,240
Total income	$39,740

If Phillip decided to limit his earnings from his job to $21,240, his income in 2023 would have been:

Social Security retirement benefit	$12,000
Employment earnings	$21,240
Total income	$33,240

Even though part of Phillip’s Social Security retirement benefit was withheld due to excess earnings, the money he earned from his job more than made up for that reduction.

Questions & Answers

How will earnings during the year you reach full retirement age affect your retirement benefit?

Earnings after full retirement age won’t affect your retirement benefit. But few people reach their full retirement age on January 1. What if you have earnings during the year before you reach full retirement age? The answer is that you are entitled to a special earnings exemption for the months that precede your birthday. For example, if you reach your full retirement age on December 1, you will be entitled to earn up to the earnings test exemption amount for that year during the months that precede your birthday without reducing your benefit, and once you reach your birthday, none of your earnings will reduce your benefit. So, in this example, as long as your earnings from January through November don’t exceed the earnings limit, you will receive all of your retirement benefit. However, if your earnings do exceed that amount $1 of your benefit will be withheld for every $3 of earnings that exceed the limit. In 2023, the retirement earnings test exempt amount is $56,520.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Social Security Retirement Income: a Primer

Posted on March 17, 2023 by fsykes - Social Security Benefits

What role does Social Security play in your retirement income strategy?

As you near retirement, it’s likely you’ll have many questions about Social Security. How much will your retirement benefit be? When should you apply? Will earnings from a part-time job affect your benefit? Social Security has always been a major source of income for many retirees, but with fewer companies offering traditional pensions, Social Security is playing an even more important role in retirement income planning. Not only can Social Security help protect you against risks that retirees often face, including longevity risk (the risk of outliving your retirement income) and inflation risk (the risk that your income won’t keep up with the rising cost of living), but it also offers built-in benefits for your family members and survivors.

When planning your retirement income strategy, you should be aware of three advantages that Social Security offers:

A steady stream of lifetime income

Social Security provides a steady source of retirement income that you can’t outlive. Although you may not be able to rely on Social Security as the sole source of your retirement income, your benefit can serve as the foundation of your retirement income plan.

Annual inflation adjustments

Your Social Security benefit provides some protection against inflation risk. Your benefit is subject to automatic annual cost-of-living adjustments (COLAs) that will generally increase the amount you receive by a certain percentage each year to help offset the effects of inflation. COLAs are payable in most years but are not guaranteed.

Benefits for eligible family members and survivors

After you retire, certain members of your family may also be eligible for benefits based on your Social Security record, which may increase your household income. They may receive continuing income from survivor benefits upon your death as well. Eligible family members may include your spouse, your minor children, and your dependent parents. The amount they receive will depend on your earnings and other factors.

How much will you receive?

Your Social Security retirement benefit is based on the number of years you’ve been working and the amount you’ve earned. When you become entitled to retirement benefits, the Social Security Administration (SSA) calculates your primary insurance amount (PIA), upon which your retirement benefit will be based, using a formula that takes into account your 35 highest earnings years.

Your age at the time you begin receiving Social Security also affects your retirement benefit. If you were born in 1943 or later your full retirement age is 66 to 67, depending on your year of birth. Electing to receive benefits before your full retirement age (you can receive benefits as early as age 62) will result in a lower benefit than if you had waited until full retirement age to begin receiving Social Security. If you delay receiving benefits past your full retirement age, you can receive delayed retirement credits that will increase your benefit by a certain percentage for every month you wait, up until age 70.

Receiving benefits at full retirement age

At full retirement age, you will be eligible for full Social Security benefits (100 percent of your PIA), provided that you have worked in a job covered by Social Security and meet other eligibility requirements. Your full retirement age depends upon the year in which you were born.

If you were born in:	Your full retirement age is:
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 and later	67

If you were born on January 1st of any year, the full retirement age for the previous year applies.

Receiving benefits earlier than full retirement age

The minimum age at which you can retire and receive Social Security retirement benefits is currently 62. At age 62, you will be eligible for reduced retirement benefits based on a percentage of your PIA, provided that you are fully insured. Your retirement benefit will be reduced by 5/9ths of 1 percent (or 0.55556 percent) for every month between your retirement date and full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. This reduction is permanent; when you reach full retirement age, you will not be eligible for a benefit increase. However, it may still make sense to receive benefits early, because you may receive benefits over a longer period of time.

Mimi decides to begin collecting her Social Security benefit at age 62, five years before her full retirement age of 67. As a result, she will receive 30 percent less per month than if she had waited until her full retirement age. However, she will receive 60 more benefit checks than if she had waited until full retirement age.

Receiving benefits later than full retirement age

You will permanently increase your retirement benefit for each month that you delay receiving Social Security retirement benefits past your full retirement age. Your benefit will increase by a predetermined percentage for each month you delay receiving retirement benefits up to the maximum age of 70. If you were born in 1943 or later, your benefit will increase by 2/3 of 1 percent for each month you delay receiving retirement benefits (8 percent per year).

Robert, who was born in 1950, will receive a $1,000 monthly retirement benefit at age 66. He decides to delay collecting Social Security until age 70, four years after his full retirement age of 66. At age 70, his retirement benefit will be $1,320, which is 32 percent higher than it would be if he had collected benefits at his full retirement age.

You can estimate your benefits under current law by using the benefit calculators available on the Social Security website. You can also sign up to view your online Social Security Statement there. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

When should you begin receiving Social Security benefits?

Should you begin receiving Social Security benefits early, or should you opt to wait until full retirement age or even longer? Obviously, if you need the money right away, your decision is clear cut. But otherwise, there’s no ”right” time to begin receiving Social Security benefits; it depends on your personal circumstances, and there are many variables. Here are some questions that can help you make your decision.

Are you planning to work?

It may be advantageous to work as long as possible if you want to increase your Social Security retirement benefit because your PIA will be recalculated annually if you have had any new earnings that might result in a higher benefit. However, although you can work and still receive Social Security, if you’re under full retirement age, wages you earn as an employee (or net earnings from self-employment income) may reduce your retirement benefit. If you’re under full retirement age for the entire year, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($21,240 in 2023). A higher earnings limit applies in the year you reach full retirement age, and the calculation is different, too–$1 in benefits will be withheld for every $3 you earn over $56,520 (in 2023).

If your earnings will be high enough to affect your Social Security benefit, you may want to consider waiting until full retirement age to begin receiving benefits, because once you reach full retirement age, you can earn as much as you want, and your benefit won’t be affected.

The benefit reduction is based on your annual earnings and is not permanent; your monthly benefit is reduced starting in January of the year following the year you had excess earnings and will be reduced until the excess earnings are used up. Additionally, if your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

Will Social Security be around when you need it?

You’ve probably heard media reports about the worrisome financial condition of Social Security, but how heavily should you weigh this information when deciding when to begin receiving benefits? While it’s very likely that some changes will be made to Social Security (e.g., payroll taxes may increase or benefits may be reduced by a certain percentage), there’s no need to base your decision on this information alone. Although no one knows for certain what will happen, if you’re within a few years of retirement, it’s probable that you’ll receive the benefits you’ve been expecting all along. If you’re still a long way from retirement, it may be wise to consider various scenarios when planning for Social Security income, but keep in mind that there’s been no proposal to eliminate Social Security.

How long will retirement last?

Retirees must make sure that they have enough income to last for a lifetime. But how many years will that be? You can never know for sure, but you can make an educated guess by using calculators or tables to calculate your life expectancy, then factoring in that information when deciding when to take your Social Security benefits. You’ll also want to consider your current health and your family health history when deciding when to take your Social Security benefits. For example, if you have a serious health condition, you may decide to take benefits earlier. On the other hand, if you can reasonably expect to live well into your 80s or 90s, you may decide to delay receiving Social Security benefits so that you can increase your retirement benefit, and boost the odds that you’ll have enough income for the years ahead.

Calculating your “break-even” age can help you compare the long-term financial consequences of starting benefits at one age versus another. Your break-even age is the age at which the total accumulated value of your retirement benefits taken at one age equals the value of your benefits taken at a second age. Although many factors can affect this number, you’ll generally reach your break-even age about 12 years from your full retirement age if taxes and inflation aren’t accounted for. For example, if you begin receiving benefits at age 62, and your full retirement age is 66, you will generally reach your break-even age at 78. This calculation may vary by one to three years, depending on what factors are used.

However, unless you’re able to invest your benefits rather than use them for living expenses, your break-even age is probably not the most important part of the equation. For many people, what really counts is how much they’ll receive each month, rather than how much they’ll accumulate over many years.

How will your spouse be affected?

If you’re married, you and your spouse should consider how Social Security will affect your joint retirement plan. Are you both eligible for benefits? How much will you each receive? What are your combined life expectancies and break-even ages? These variables can affect the decisions you make regarding your Social Security benefits.

For example, the age at which you begin receiving benefits may significantly affect the amount of lifetime income your spouse or surviving spouse may receive. If your spouse has never worked outside the home or in a job covered by Social Security, or has worked but doesn’t qualify for a retirement benefit higher than yours based on his or her own work record, he or she may be able to receive a spousal retirement benefit based on your work record. At full retirement age, your spouse may be entitled to receive 50 percent of your full retirement benefit amount, and will generally be eligible for a survivor benefit equal to 100 percent of your benefit upon your death. If you’re the primary wage earner, it may make sense for you to delay receiving benefits, because the larger your benefit, the larger benefit your spouse may receive, both before and after your death. If your spouse’s life expectancy is much longer than yours, this can be an especially important consideration.

However, your spouse can’t file for spousal benefits based on your earnings record until you reach full retirement age and file for benefits.

What is the impact on your overall retirement income plan?

Any decisions you make regarding Social Security income should take into account other potential sources of retirement income, and your overall retirement income plan. For example, you may need to determine whether it’s wise to take early Social Security benefits so that you can delay withdrawing funds from tax-advantaged investments (e.g., 401(k) plans, 403(b) plans, or traditional IRAs), allowing them to continue to accumulate tax deferred. If you’re eligible for pension benefits, you’ll need to consider how Social Security impacts that income. For example, pension benefits from a job not covered by Social Security may be reduced (offset) by any Social Security income you receive.

Another major consideration is your tax situation. If the only income you had during the year was Social Security income, then your benefit generally won’t be taxable. However, other income you receive during the same year (generally earned income or substantial investment income) may trigger taxation of part of your Social Security benefit. It’s important to look at how other sources of income are taxed and how your overall tax liability might be affected when considering when to take your Social Security benefits.

The rules surrounding taxation of Social Security benefits are complex. The IRS has a worksheet you can use to determine whether or not your Social Security benefits are taxable. You can find this worksheet and more information about the taxation of Social Security benefits in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. You may want to speak to a tax professional about your specific situation.

How do you apply for Social Security benefits?

According to the SSA, you should apply for Social Security benefits approximately three months before your retirement date. No matter when you apply for Social Security, you’ll be eligible for Medicare at age 65, so make sure you contact the SSA three months before you turn 65, even if you plan to retire later. To apply for Social Security benefits, you can fill out an application on the SSA website (ssa.gov), or call or visit your local Social Security office. You can also call the SSA at (800) 772-1213 to discuss your options or to get more information about the application process.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Integrating Social Security with Other Retirement Plans

Posted on March 13, 2023 by fsykes - Social Security Benefits

What is it?

You may receive retirement and/or survivor’s benefits from sources other than Social Security. Perhaps you are a federal employee, or maybe your employer pays you a pension. You can plan better for retirement if you know how income from other benefit plans may affect your Social Security benefits and how your Social Security benefits may affect how much you receive from other benefit plans.

The government pension offset

What is the government pension offset?

If you are entitled to receive a government pension as well as Social Security spousal retirement or survivor’s benefits, the government pension offset may reduce the amount of the spousal retirement or survivor’s benefit paid to you.

Who does it affect?

Social Security retirement or survivor’s benefits payable to the spouse (or divorced spouse) of a worker covered by Social Security may be reduced (offset) if that spouse receives a federal, local, or state governmental pension based on his or her own earnings.

The government pension offset applies only to a pension payable to the spouse based on his or her own earnings that weren’t covered under Social Security. For example, a pension received by a federal employee enrolled in the Civil Service Retirement System (CSRS) may affect Social Security benefits, because the pension is based on earnings that weren’t subject to Social Security payroll taxes.

The pensions of some government employees are exempt from the offset

The Social Security Administration (SSA) lists the following employees as exempt from the government pension offset:

Any state, local, or military service employee whose government pension is based on a job where he or she was covered by Social Security throughout his or her last 60 months of employment with the government entity.
Anyone whose government pension is not based on his or her own earnings.
Anyone who received or who was eligible to receive a government pension before December 1982 and who meets all the requirements for Social Security spouse’s benefits in effect in January 1977.
Anyone who received or was eligible to receive a federal, state, or local government pension before July 1, 1983, and was receiving one-half support from her or his spouse.
Federal employees who are mandatorily covered under Social Security.
Federal employees who chose to switch from the CSRS to the Federal Employees Retirement System (FERS) on or before December 1987. Federal employees who chose to switch after December 1987 need five years under FERS to be exempt from the government pension offset. If, however, the Office of Personnel Management allowed an employee to make a belated election to FERS, that change could have been made through June 30, 1988.

How much is the government pension offset?

The government pension offset will reduce spousal Social Security retirement or survivor’s benefits by two-thirds of the amount of the government pension.

Marilyn receives $600 a month from her government pension (based on her own earnings), and she is entitled to receive a $500 spousal retirement benefit based on her husband’s Social Security record. Two-thirds of the amount of her government pension is $400, so her Social Security spousal retirement benefit will be reduced from $500 to $100.

The windfall elimination provision

What is the windfall elimination provision?

The windfall elimination provision (WEP) affects how your Social Security retirement benefit is figured if you receive a pension from work not covered by Social Security. The formula used to figure your benefit is modified, resulting in a lower Social Security retirement benefit.

Who does it affect?

The WEP provision might affect you if:

You earned a government pension from work not subject to Social Security taxes, and you also worked at another job where you paid Social Security taxes long enough to qualify for a Social Security retirement benefit, and
You reach 62 after 1985 and first become eligible for the monthly pension after 1985 (you are considered eligible for the pension, if you meet the pension requirements, even if you continue to work).

How your retirement benefit is normally calculated

Normally, your benefit is calculated by applying a benefit formula to your average indexed monthly earnings (AIME). This benefit formula separates your average earnings into three levels and multiplies each level by a different factor. For example, if you turn 62 in 2022, the first $1,115 of your AIME is multiplied by 90 percent. The next $6,721 is multiplied by 32 percent and the remainder by 15 percent.

How your retirement benefit is calculated using the revised formula

The revised formula is used to calculate your benefit if you are eligible for a pension from noncovered employment. This formula reduces the 90 percent factor to 40 percent to calculate the benefit for people who reached age 62 in 1990 or later and have minimal Social Security coverage. However, if you have between 21 and 29 years of substantial earnings, the percentage factor is reduced to between 45 and 85 percent.

Two other methods, the simplified old-start method and the special minimum PIA, are also considered when determining the amount of benefits payable. The computation that yields the highest PIA will be used by the SSA to determine the amount of benefits payable.

The revised formula doesn’t apply in certain cases

The revised formula doesn’t apply if:

You’re a federal worker covered for Social Security purposes
You were employed on December 31, 1983, by a nonprofit organization that was exempt from Social Security and it became mandatorily covered under Social Security on that date
Your only pension is based on railroad employment
You have 30 or more years of coverage under Social Security
Your Social Security benefit is a survivor’s benefit

The revised formula can reduce benefits only up to a certain limit

Your Social Security retirement benefit can’t be reduced to an amount less than one-half of the part of your pension attributable to earnings after 1956 not covered by Social Security. A calculator is available at the Social Security Administration’s website, socialsecurity.gov, that can help you calculate your WEP reduction.

How will your Social Security benefits affect income you receive from other benefit plans?

The FERS annuity supplement

A retired employee receiving a Basic Annuity under the Federal Employees Retirement System (FERS) also receives a Basic Annuity Supplement if that employee is under age 62. The Supplement is equal to the estimated amount of Social Security retirement benefits that the employee would be eligible to receive based on civil service retirement earnings. The Supplement stops when the employee becomes eligible for Social Security retirement benefits (age 62). Only employees eligible to receive an unreduced retirement annuity can receive the Supplement, unless the employee was retired involuntarily and is age 55 or older.

Survivor’s benefits under FERS

Besides receiving a survivor’s annuity, the widow or widower of an employee covered under the FERS system will be eligible to receive an annuity supplement if he or she is under age 60 and therefore not yet eligible to receive Social Security benefits. The annuity supplement is designed to be the equivalent of Social Security or a Civil Service Retirement System survivor’s benefit. In addition, the survivor’s annuity that a dependent child receives is reduced by the amount of any Social Security survivor benefits he or she receives.

Survivor’s annuities under the Railroad Retirement Act

The Railroad Retirement Act provides retirement and survivor’s benefits (in the form of an annuity) to railroad employees. These benefits are financed by payroll taxes. The benefits are divided into two levels: Tier I and Tier II. Tier I benefits are based upon railroad service and Social Security covered employment. They’re generally equivalent to Social Security benefits and are calculated in a similar way. Tier II benefits are based on railroad service alone and are paid over and above Social Security benefit levels.

Survivor’s annuities paid under Tier I are reduced by the amount of any Social Security benefit received by the survivor. In addition, like Social Security benefits, railroad annuities are subject to an excess earnings limit. Survivors who are receiving Social Security benefits have their railroad retirement annuity and Social Security benefit combined for earnings limitation purposes.

How Social Security affects qualified retirement plans

Your employer may integrate Social Security with a qualified retirement plan where permitted by law. Check with your employer if you have questions regarding your qualified retirement plan.

Your employer-sponsored disability or health care plan may also be integrated with Social Security disability benefits or Medicare.

Questions & Answers

Will you qualify for Medicare even if you don’t receive a Social Security retirement benefit because you receive a government pension?

If you’re age 65, you may qualify for Medicare even if you don’t receive a Social Security retirement benefit.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Optimizing Your Social Security Retirement Benefits

Posted on March 9, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What does it mean?

Getting the most out of your contributions

Optimizing your Social Security retirement benefits means getting the best return possible on each dollar you’ve contributed to the system. Every pay period, you pay 6.2 percent of your salary in taxes that finance your future benefits (retirement, disability, and survivor’s benefits) and those of other Americans. In addition, your employer pays an equal share of taxes; if you’re self-employed, you contribute both your own portion and the employer portion by paying a self-employment tax.

Most Americans should plan a benefit strategy

Most jobs are covered by or are eligible for coverage under Social Security. This means that most Americans will use their benefit coverage at some point during their lives. The amount of Social Security benefits you receive will partly be determined by law, inflation, and other conditions outside your control. However, if you make wise decisions regarding when you retire and how much you earn, you can potentially increase the amount of benefit you will receive.

Will you get out of Social Security what you’re putting in?

What you pay into the system isn’t exactly what you get out of it

If you have a 401(k) or another qualified retirement plan, you probably know exactly how much you contribute to it each month. From year to year, you watch as your savings grow. But do you know what you contribute to Social Security? Because Social Security taxes are involuntary (unlike contributions to a private retirement plan), you probably don’t. You may know approximately what distribution you will receive from an IRA, for example, but when you’re ready to retire, how much of what you’ve paid into the Social Security system will you collect? The answer to that question is tricky because you may never need to use some of the benefits you have earned. In addition, Social Security is both a pay-as-you-go system of benefits and a social program. What you pay into the system isn’t exactly what you get out of it.

How the average indexed monthly earnings (AIME) benefit formula favors low-income individuals

If you retire at normal (full) retirement age, your retirement benefit will be 100 percent of your primary insurance amount (PIA). Your PIA is calculated by applying a benefit formula to your AIME. If you have had low earnings over your lifetime, your benefit will be much lower than the benefit of someone who had high earnings. However, because the benefit formula is weighted to favor individuals with low earnings, you will get back a greater percentage of what you put in than someone who had high earnings.

You can’t change the benefit formula

Clearly, the individual with the highest lifetime earnings receives the highest monthly retirement benefit. However, the individual with the lowest lifetime earnings receives a benefit that reflects the highest percentage of lifetime earnings. Though you can’t change Social Security’s benefit formula, you can make some decisions during your lifetime that will affect the amount of your retirement benefit.

Decisions that affect the amount of your Social Security retirement benefit

When you receive your retirement benefit

Choosing when to start receiving retirement benefits is a personal decision but one that shouldn’t be made hastily. Taking time to clip grocery coupons may save you a few dollars; taking a few minutes to decide when you want to start receiving retirement benefits could save you thousands. This is because retiring earlier or later than normal (full) retirement age can greatly change the amount of your monthly retirement benefit.

When you retire at normal (full) retirement age, you will receive a retirement benefit equal to 100 percent of your PIA. If you retire early (often at age 62, but anytime before normal (full) retirement age), you will receive a reduced benefit. If you retire later than normal (full) retirement age (but before age 70), you will receive an increased benefit. Because you want to receive the highest benefit, you want to postpone retirement as long as possible, right? Not necessarily. Even though you will receive less money per month if you retire early, over your remaining lifetime you may receive more than someone who retired late or at normal (full) retirement age. For example, if you retire at age 62, you will receive 60 more benefit checks than someone who retires at 67. This may add up to a substantial amount of money that will be difficult to compensate for even with an increased benefit check. On the other hand, you may want to work as long as possible because you need to provide for your family. In addition, if you postpone receiving your Social Security retirement benefit, you will increase your benefit substantially because your monthly earnings may increase and you will receive a late retirement credit.

When deciding at what age you want to begin receiving Social Security retirement benefits, consider other retirement benefits you may receive as well. For example, you may be able to retire at age 62 (or earlier) and begin receiving a pension from your employer as well as a Social Security supplement that will pay you a benefit equivalent to what you would receive from Social Security until you reach normal (full) retirement age. Consider, too, your tax situation, and how your decision will affect your spouse or dependent family members.

How much you earn during your lifetime

Since your retirement benefit check will be based on your average monthly earnings, earning more during your lifetime is one way to maximize your Social Security retirement benefit. The indexed income you receive in a certain number of your highest earnings years (usually 35) is added up and divided by the number of months that elapsed during those years. The result is your AIME amount. Then, a benefit formula will be applied to determine your PIA upon which your monthly benefit will be based.

You can’t increase your monthly benefit by changing the formula used to calculate it; that formula is determined by law. However, you may increase your monthly benefit by increasing your AIME amount. You may also wish to increase your AIME to ensure that you will be eligible for minimum Social Security benefits in the event that you’ve worked only sporadically in a job covered by Social Security.

How much you earn after you retire

Part of your Social Security retirement benefit is not payable if you’re under normal (full) retirement age and have earned income in retirement in excess of a certain amount. This amount is known as the retirement earnings test exempt amount. In 2023, you can earn up to $21,240 if you have not yet reached normal (full) retirement age or up to $56,520 during the year you reach normal (full) retirement age (up to, but not including the month you reach normal (full) retirement age). If you make the same as or less than these amounts, your Social Security retirement benefit won’t be reduced.

Once you have reached your normal (full) retirement age, your earnings in retirement won’t reduce your Social Security benefit. So to optimize your benefit, you can calculate how your earned income might affect your benefit and consider postponing any earned income in retirement until you reach your normal (full) retirement age. However, keep in mind that the benefit reduction is based on your actual earnings and is not permanent; your monthly benefit is reduced starting in January of the year following the year you had excess earnings and will be reduced until the excess earnings are used up. Additionally, if your monthly benefit is reduced in the short term due to your earnings, you’ll receive a higher monthly benefit later. That’s because the Social Security Administration (SSA) recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

Get the information you need to plan your strategy

Before you can plan a strategy to optimize your retirement benefits, you need to find out how much you might receive. You can use the SSA’s Retirement Estimator tool available on the SSA’s website (ssa.gov) to estimate your future Social Security benefits based on your earnings record. You can also visit the SSA website to sign up for a my Social Security account and obtain a copy of your Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Electing Delayed Social Security Retirement Benefits

Posted on February 28, 2023 by fsykes - Retirement Benefits, Social Security Benefits

What is it?

You can elect to delay receiving Social Security retirement benefits

You can choose to delay receiving Social Security retirement benefits until you are past normal (full) retirement age. Perhaps you want to work longer because you enjoy it, or maybe you want your retirement benefit to be higher when you finally do retire.

Your benefit will be increased by the delayed retirement credit

If you are eligible to receive Social Security retirement benefits but you delay receiving benefits until after normal retirement age, you will be eligible to receive the delayed retirement credit. The delayed retirement credit increases your retirement benefit by a predetermined percentage of your primary insurance amount (PIA) for each month you delay receiving retirement benefits up to the maximum age of 70. The amount of the credit you receive depends upon two factors:

What year you were born
How many months you delayed receiving retirement benefits past normal retirement age

If you were born in 1943 or later, you will receive 2/3 of 1 percent more per month or 8 percent more per year if you delay receiving retirement benefits. So, for example, if your normal retirement age is 66, and you delay retirement until age 70, your benefit at age 70 will be 32 percent more than it would be at age 66. If your normal retirement age is 67, and you delay retirement until age 70, your benefit at age 70 will be 24 percent more than it would be at age 66.

Although the delayed retirement credit increases your Social Security retirement benefit, it does not increase your PIA.

When can it be used?

You must be eligible to receive delayed retirement benefits

In order to receive delayed retirement benefits, you must meet the following criteria:

You must be at least one month older than normal retirement age, and
You must be fully insured for retirement benefits (in most cases have 40 quarters of coverage).

You must apply for benefits

Receiving delayed retirement benefits is not automatic. You must apply for benefits when you want to begin receiving them. The Social Security Administration (SSA) recommends that you contact an SSA representative two or three months before you want to begin receiving benefits. You can call the SSA at 1-800-772-1213 for more information.

Strengths

Your retirement benefit will increase

If you continue to work past normal retirement age and delay receiving Social Security retirement benefits, you may increase your retirement benefit in two ways. Not only will you receive a delayed retirement credit, but your earnings after normal retirement age may be substantial enough to increase your average indexed monthly earnings (AIME), upon which your benefit is based.

Your surviving spouse’s benefit will increase

If you elect to receive delayed retirement benefits, then die, your surviving spouse (at normal retirement age) may receive 100 percent of the benefit you were receiving. Therefore, if your spouse has a life expectancy substantially greater than your own, you might consider delaying retirement so that your spouse may receive a higher benefit after you die.

Your delayed retirement credit isn’t counted toward your family maximum

When you retire, your family may be eligible to receive benefits based on your PIA. These benefits may be limited by the family maximum, which generally ranges from 150 to 180 percent of your PIA. However, if you delay receiving retirement benefits, your delayed retirement credit won’t count toward your family maximum and can be paid whether or not your family’s benefits are limited by the family maximum.

Tradeoffs

Delaying retirement won’t necessarily increase your lifetime retirement benefit

Just because you receive a higher monthly benefit when you delay retirement doesn’t necessarily mean you’ll receive a higher overall lifetime benefit. If you delay receiving retirement benefits, the amount of each benefit check will be higher, but you’ll receive fewer benefit checks than you would have if you begin receiving retirement benefits at normal retirement age. How many fewer checks you receive will depend upon how many years you delay receiving retirement benefits.

For example, assume the following facts apply to you:

You delay retirement by 4 years, and retire at age 70 instead of at age 66, making you eligible for an 8 percent delayed retirement credit for each year you delay retirement. You will receive 48 fewer benefit checks.
Your PIA is $1,000, so if you retire at age 66, your annual benefit will be $12,000. If you retire at age 70, your monthly benefit will be increased by $320, so your annual benefit will be $15,840.
Assume that even if you’ve saved or invested all or part of your benefits, your real rate of return is 0 percent.

Using these factors, it would take you more than 12 years from the time you retire at age 70 to reach the point at which your benefits would crossover with the amount you would have accumulated if you began receiving benefits at age 66 (does not take into account annual cost of living increases):

By this Age	Accumulated Benefit if Retirement Age is 66	Accumulated Benefit if Retirement Age is 70 (32% credit has been earned)
70	$ 48,000	$0
76	$120,000	$95,040
82	$192,000	$190,080
83	$204,000	$205,920

If you were to die before reaching this crossover point, your lifetime benefits would be lower than if you had retired at your normal retirement age. Conversely, if you were to die after reaching this crossover point, then your lifetime benefits would be higher. That’s why life expectancy is one of the factors to consider when deciding whether to delay receiving Social Security retirement benefits.

The delayed retirement credit won’t increase benefits paid to most family members

When you earn the delayed retirement credit, your retirement benefit will increase. However, because the delayed retirement credit doesn’t affect your PIA, benefits that are paid to family members won’t increase (unless you die, at which time your surviving spouse may receive the same benefit you were receiving).

How to do it

Decide whether you want to delay receiving retirement benefits by comparing your options

You can estimate your retirement benefit online using the Retirement Estimator calculator on the Social Security website (ssa.gov). You can create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive. Remember, this considers only your earnings and gives a basic calculation of the amount you earn from delaying. If you have anything more complex, like retirement as a couple or pulling from an ex-spouse’s benefit, you might want to work with an expert to ensure you have not missed any of the details that might affect your benefits; we can help with a flat fee Social Security plan that will give you peace of mind with the current 2800+ regulations that govern Social Security.

Consider the following questions before making your decision

Why do you want to delay receiving retirement benefits?
Can you afford to delay receiving retirement benefits, or do you need Social Security retirement income as soon as possible?
Do you expect to live long enough to benefit from delaying your retirement benefits?

How important is it to increase the amount of survivor income available to your spouse?

Apply for delayed Social Security retirement benefits

Three months before you’re ready to retire, fill out an application for benefits with the SSA.

Don’t forget to apply for Medicare benefits at age 65. See Questions & Answers.

Tax considerations

If you continue to work past normal retirement age, you will continue to pay Social Security or self-employment tax on your covered earnings. Even though your earnings may increase your AIME (and thus your retirement benefit), you may not be able to recoup those payroll taxes.

Questions & Answers

If you delay receiving Social Security retirement benefits, can you still receive Medicare at age 65?

Yes. Anyone age 65 or older who is entitled to receive Social Security benefits is eligible to receive Medicare, even if he or she has not yet filed an application for Social Security benefits. However, enrollment in Medicare is automatic only for individuals who are receiving Social Security retirement benefits for at least four months before reaching age 65. If you elect to delay receiving retirement benefits, you will need to apply for Medicare benefits online, in person, or through the mail.

Can you delay receiving Social Security retirement benefits until you’re 71 or older?

Yes, but there’s no advantage to waiting longer than age 70 to begin receiving Social Security retirement benefits. You can earn the delayed retirement credit only up until age 70. In addition, if you want to work, any money you earn from working after age 70 won’t decrease your Social Security retirement benefit. So why wait?

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Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Social Security Retirement Benefit Basics

Posted on February 26, 2023 by fsykes - Retirement Benefits, Social Security Benefits

Social Security benefits are a major source of retirement income for most people. Your Social Security retirement benefit is based on the number of years you’ve been working and the amount you’ve earned. When you begin taking Social Security benefits also greatly affects the size of your benefit.

How do you qualify for retirement benefits?

When you work and pay Social Security taxes (FICA on some pay stubs), you earn Social Security credits. You can earn up to 4 credits each year. You need at least 40 credits (10 years of work) to be eligible for retirement benefits.

How much will your retirement benefit be?

The Social Security Administration (SSA) calculates your primary insurance amount (PIA), upon which your retirement benefit will be based, using a formula that takes into account your 35 highest earnings years. At your full retirement age, you’ll be entitled to receive that amount. This is known as your full retirement benefit. Because your retirement benefit is based on your average earnings over your working career, if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily.

Your age at the time you start receiving benefits also affects your benefit amount. Although you can retire early at age 62, the longer you wait to begin receiving your benefit (up to age 70), the more you’ll receive each month.

You can estimate your retirement benefit under current law by using the benefit calculators available on the SSA’s website, ssa.gov. You can also sign up for a my Social Security account so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60.

Retiring at full retirement age

Your full retirement age depends on the year in which you were born. If you retire at full retirement age, you’ll receive an unreduced retirement benefit.

If you were born in:	Your full retirement age is:
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 or later	67

If you were born on January 1 of any year, refer to the previous year to determine your full retirement age.

Retiring early will reduce your benefit

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you begin receiving benefits early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1% for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1% thereafter. This reduction is permanent — you won’t be eligible for a benefit increase once you reach full retirement age. However, even though your monthly benefit will be less, you might receive the same or more total lifetime benefits as you would have had you waited until full retirement age to start collecting benefits. That’s because even though you’ll receive less per month, you might receive benefits over a longer period of time.

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 permanently increase by a certain percentage, up to the maximum age of 70. For anyone born in 1943 or later, the monthly percentage is 2/3 of 1%, so the annual percentage is 8%. So, for example, if your full retirement age is 67 and you delay receiving benefits for 3 years, your benefit at age 70 will be 24% higher than at age 67.

Monthly benefit example

The following chart illustrates how much a monthly benefit of $2,000 taken at a full retirement age of 67 would be worth if taken earlier or later than full retirement age. For example, as this chart shows, this $2,000 benefit would be worth $1,400 if taken at age 62, and $2,480 if taken at age 70.

This hypothetical illustration is based on Social Security Administration rules. Actual results will vary.

Working may affect your retirement benefit

You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may temporarily affect your benefit. Here’s how:

If you’re under full retirement age for the entire year, $1 of your benefit will be withheld for every $2 you earn over the annual earnings limit ($21,240 in 2023)
A higher earnings limit applies in the year you reach full retirement age, and the calculation is different, too — $1 of your benefit will be withheld for every $3 you earn over $56,520 (in 2023)

Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit. And keep in mind that if some of your benefits are withheld prior to your full retirement age, you’ll generally receive a higher monthly benefit at full retirement age, because after retirement age the SSA recalculates your benefit every year and gives you credit for those withheld earnings.

Retirement 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 1 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 (through grade 12) 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% of your benefit. However, the amount that can be paid monthly to a family is limited. The total benefit that your family can receive based on your earnings record is about 150% to 180% 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.

For more information on retirement benefits or the application process, contact the Social Security Administration at (800) 772-1213 or visit ssa.gov.

Signing up for Social Security

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Minimizing Taxation of Your Social Security Retirement Benefit

Posted on February 12, 2023 by fsykes - Retirement fears, Social Security Benefits

Your Social Security retirement benefit may be taxable

Did you know that you might have to pay federal income tax on your Social Security retirement benefit? If the only income you had during the year was Social Security income, then your benefit usually isn’t taxable. However, if you earned other income during the year or had substantial investment income, then you might have to pay federal income tax on part of your benefit if your total income exceeds a certain base amount.

If you have earned income or investment income over the base amount, you can use certain strategies to minimize (or even eliminate) the amount of tax you have to pay on your Social Security benefit. These strategies include changing your filing status and reducing your modified adjusted gross income (MAGI). However, before using these strategies, consult your tax advisor for information on your individual situation.

Is your benefit taxable?

Determining whether your Social Security retirement benefit is taxable

Before you consider ways to minimize taxation of your Social Security retirement benefit, you must determine whether your benefit is taxable at all. Your benefit is taxable if one-half of your Social Security benefit plus your MAGI exceeds the base amount for your filing status.

Your MAGI includes taxable pensions, wages, interest, dividends, and other types of taxable income. It also includes tax-exempt interest income plus normally excludable income such as interest from Series EE savings bonds (which may also be called Patriot bonds) and the foreign earned income of U.S. citizens and residents.

Your filing status

When you fill out your federal income tax return, you choose your filing status based on your marital status. You can file in one of five ways: single, married filing jointly, married filing separately, unmarried head of household, or qualifying widow or widower (with a dependent child). For Social Security purposes, your filing status is important because the amount of income you can have before your benefit is taxable depends partly on your filing status.

The base amount for your filing status

How much income you can have before your Social Security benefit becomes taxable is known as the base amount. The base amount is determined by law and is not adjusted annually for inflation. The base amount that you use to determine the taxability of your Social Security benefit depends upon your filing status. Your base amount is:

$25,000 if you file as single, head of household, or qualifying widow(er)
$25,000 if you file as married filing separately and you lived apart from your spouse for all of the tax year
$32,000 if you file as married filing jointly
$0 if you file as married filing separately and you lived with your spouse at any time during the tax year

How much Social Security retirement benefit you received

At the end of each tax year, the Social Security Administration (SSA) will send you a form (SSA-1099 or RRB-1099) showing the amount of benefit you received during the year. You can use this to figure out whether any of your benefit will be taxable.

Adding it all up

You can use Worksheet A in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits to calculate whether your total income (as defined above) exceeds the base amount for your filing status. This worksheet has the following steps:

Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. Include the full amount of any lump-sum benefit payments received in the current tax year, for the current tax year and earlier years. (If you received more than one form, combine the amounts from box 5 and enter the total.)
Note: If the amount on line A is zero or less, stop here; none of your benefits are taxable this year.
Enter one-half of the amount on line A.
Enter your taxable pensions, wages, interest, dividends, and other taxable income.
Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income.
Add lines B, C, and D.
Note: Compare the amount on line E to your base amount for your filing status. If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. If the amount on line E is more than your base amount, some of your benefits may be taxable. You need to complete Worksheet 1.

How much of your benefit is taxable?

What percentage of your retirement benefit is taxable?

Even if you determine that your Social Security retirement benefit is taxable, you won’t have to pay tax on your whole benefit. Either up to 50 percent or up to 85 percent of your benefit will be taxable, depending on your filing status and whether the total of your MAGI and one-half of your Social Security benefit exceeds a certain limit.

What is your modified adjusted gross income?

On IRS Form 1040, adjusted gross income (AGI) is your gross income minus certain “above-the-line” deductions allowed by law. These include:

Certain business expenses of reservists, performing artists, and fee-basis government officials
IRA deduction
Student loan interest deduction
Health savings account deduction
Deductible part of self-employment tax
Self-employed health insurance deduction
Self-employed SEP, SIMPLE, and qualified plans
Penalty on early withdrawal of savings
Domestic production activities deduction

Your MAGI is your AGI, minus (or not including) the taxable amount of your Social Security benefits, plus income that is normally not included in AGI (such as foreign earned income and income from qualified U.S. savings bonds).

When up to 50 percent of your retirement benefit will be taxable

Up to 50 percent of your retirement benefit will be taxable if the total of one-half of your benefits and your MAGI is more than the following base amount for your filing status:

$25,000 if you’re filing as single, head of household, or qualifying widow(er)
$25,000 if you’re filing as married filing separately and you lived apart from your spouse for the whole tax year
$32,000 if you’re filing as married filing jointly

When up to 85 percent of your benefit will be taxable

Up to 85 percent of your retirement benefit will be taxable if one-half of your Social Security benefit plus your MAGI exceeds the following base amount for your filing status:

$34,000 if you’re filing as single, head of household, or qualifying widow(er)
$34,000 if you’re filing as married filing separately and you lived apart from your spouse for the whole tax year
$44,000 if you’re filing as married filing jointly
$0 if you’re filing as married filing separately and you lived with your spouse at any time during the tax year

Calculating your taxable benefits

Because the calculation is complex, you need to use a worksheet to compute your taxable benefit. Several worksheets are available from the IRS. What worksheet you use depends upon your situation. In general, you can use the worksheet available in the instructions for IRS Form 1040 (or 1040A) or Worksheet 1 in Publication 915. However, you must use a worksheet specified by the IRS if any of the following situations apply to you:

You contributed to a traditional individual retirement arrangement (IRA) and your IRA deduction is limited because you or your spouse is covered by a retirement plan at work. In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits.
Situation (1) doesn’t apply and you take an exclusion for interest from qualified U.S. savings bonds (IRS Form 8815), for adoption benefits (IRS Form 8839), for foreign earned income or housing (IRS Form 2555 or IRS Form 2555-EZ), or for income earned in American Samoa (IRS Form 4563) or Puerto Rico by bona fide residents. In this situation, you must use Worksheet 1 in Publication 915 to figure your taxable benefits.
You received a lump-sum payment for an earlier year. In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915.

Tax considerations

You may be able to deduct the amount of Social Security retirement benefit that was taxed from your state income tax return

Check with your tax advisor or state tax official to find out if your state allows this deduction.

Questions & Answers

If your child receives Social Security benefits but the check is made out to you due to his or her age, do you need to include the amount of benefit your child receives in the calculation to determine whether your own Social Security benefit is taxable?

No. Your child’s benefit doesn’t affect whether your benefit is taxable, even if the check is made out in your name.

When will you receive your annual statement from the Social Security Administration showing how much benefit you were paid during the year?

You should receive your annual statement by January 31 of the year following the year of benefit payments.

If you know that you’re going to owe income tax on your Social Security benefit, can you have that tax withheld?

Yes. You can fill out IRS Form W-4V, Voluntary Withholding Request, and choose to withhold a specific percentage of your total benefit payment. If part of your benefit is taxable, you may have to make estimated tax payments or request additional withholding from other income next year.

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Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.