Planning for retirement can be exciting, but sometimes it can also be confusing, especially when it comes to Social Security.
This Q&A is designed to help answer your questions. If you want to learn more, go to the Social Security Administration’s website at ssa.gov. You can also visit rzwealth.com/resource-center/retirement and find a ton of educational resources on retirement.
Answers to Your Questions
Q: When should I start Social Security benefits?
A: Timing is important, especially since the program rewards people for waiting to start their benefits. If you retire at what Social Security calls your "full retirement age” you’ll get your full benefit. (Your full retirement age is 66 or 67, depending on what year you were born.)
In general, the longer you wait (up until age 70), the bigger your benefit. So, if you can get by without Social Security for a while, waiting to start might be a good idea.
That said, sometimes it can make sense to start Social Security sooner rather than Later. Someone might start earlier if he or she:
- Needs the payments to cover expenses right away
- Has serious health problems or a family history of shorter Life spans
- Would rather take payments early and invest them
- Is the Lower-earning spouse, while the higher earner continues to remain employed.
Q: How much will I get from Social Security?
A: You can get an estimate of your benefits by creating a "my Social Security" account at ssa.gov.
Your benefit amount will depend on various factors, such as:
- How much you earned during your working years
- When you start benefits
- Whether or not you work during retirement
Q: Will Social Security be enough?
A: Most likely not. Social Security wasn't designed to be anyone's only source of retirement income.
If you're an average income earner hoping to have 80-100 percent of your pre-retirement income, you can plan to collect about 40 percent of that income from Social Security.
Q: What if I work during retirement?
A: That can be a little tricky- but just until you reach your full retirement age (66 for most people; 67 if you were born in 1960 or later). Let's say you start your Social Security benefits before your full retirement age. If you also work during that time, your benefit could be reduced if your wage is over certain limits. (See the chart below for details.)
But there's some good news. Once you reach your full retirement age (FRA), you can work with no reduction to your benefit-no matter how much you earn.
Employment Income 2016 limits
For every $2 over the limit, $1 is withheld from benefits.
In the year FRA is reached
For every $3 over the limit, $1 is withheld from benefits until the month in which FRA is reached.
At FRA or older*
No limits on earnings
At FRA or Older*
*At FRA your benefit amount is adjusted upward to accommodate for the earlier reduction.
Q: Do I have to pay taxes on Social Security benefits?
A: Maybe. Depending on something called your "provisional income" (which is your adjusted gross income plus any tax-exempt interest and ha f of your Social Security benefits), you may have to pay taxes on up to 85 percent of your Social Security benefit.
These tables show how much of your Social Security income is taxable, depending on your filing status and provisional income:
Benefits subject to tax
Up to 50%
Up to 85%
Married filing jointly
Benefits subject to tax
Up to 50%
Up to 85%
Source: Social Security Administration
Q: Do my Social Security affect my spouse’s benefits?
A: Yes- and vice versa. If you're married and full retirement age or older, you'll receive either your own Social Security benefit or one-half of your spouse's benefit, whichever is greater. This is known as a spousal benefit. (This also applies if you're divorced after being married at Least 10 years, if you aren't currently married to someone else.)
This can be a good option if one spouse has earned a lot less than the other over the years. (Your spouse must start his or her own Social Security benefits for you to use this strategy.)
Also, delaying Social Security can increase the benefits for a surviving spouse. When one spouse dies, the other can usually get the greater of his or her existing benefit or the deceased spouse's benefit. So, if the higher earner waited to start their benefits until their FRA or later, their benefit will be that much higher for the surviving spouse.
Q: What if I make a mistake?
A: Good news! Social Security offers a do-over.This little-known provision lets you stop your current benefits, pay back all you've collected (interest-free!) and restart your benefits at a new, higher rate based on your current age. However, you can only do this once-within 12 months of your initial decision to start benefits.
How do you know if this is a good idea for you? You must make sure you can pay back all the benefits you've received. So, you may want to consider it if you have a high net worth or have a wind fall from an inheritance or the sale of a business.
Have a question on this topic? Contact us today.
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