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Social Security and Retirement

How Social Security Affects Your Retirement

When contemplating retirement, you, like many other people today, may be counting on Social Security benefits to provide you with a basic level of income. The age at which you choose to retire is an important part of the equation. In addition, there are many other issues to consider when making that choice.

Let’s look at the following questions: 1) How would an early retirement, for example, at age 62 vs. age 65, affect your Social Security benefits? 2) How will those benefits be taxed? and 3) Is it in your best interest to continue working to earn extra income when your Social Security benefits could be reduced, based on your earnings?

What’s the Maximum?

As most people realize, Social Security provides only a base level of income. The maximum benefit for a person who retires in 2020 at full retirement age (65–67 depending on your year of birth) is $3,011 per month. In comparison, the maximum benefit in 2019 was $2,861 per month. It is important to note that the benefit for a non-working spouse is only 50% of that amount.

Should You Delay Retirement?

If you delay retirement past your full retirement age, your monthly benefit will increase, based on the age at which you elect to take retirement benefits. But, upon reaching age 70, the benefit increase no longer applies, even if you continue to delay the payment of benefits. Receiving benefits at age 62 (considered early retirement) is appealing to many people. However, if you decide to take early retirement benefits from Social Security, your monthly benefit amount will be permanently reduced by 20–30%, based on your full retirement age.

Some people continue working and earning additional money to supplement basic Social Security income. This is where you need to be careful. If you earn more than the maximum amount allowed, you may forfeit some of your benefits. If you are under full retirement age, receive Social Security benefits, and earn additional income, your benefits will be reduced by $1 for each $2 you earn over $18,240 in 2020. During the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 earned over $48,600 in 2020. Upon attainment of full retirement age, there is no earnings limit, and Social Security benefits will not be reduced.

Full Retirement Age: It’s Changing

For a long time, the retirement age has been 65. Due to longer life expectancies, that age will increase in gradual steps until it reaches age 67. This change began in the year 2000 and affects people born in 1938 and later. Age 62 still remains the earliest you may begin to receive Social Security retirement benefits.

For Your Information

Note that as of April 2011, the SSA stopped mailing out annual estimated benefit statements to workers under age 60 and retirees already receiving benefits as a fiscal restraint measure. To receive an estimate of your projected payments, you can go to the SSA’s website at www.ssa.gov.

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