What You Should Know about Social Security
Social Security benefits are an important part of most retirement plans. Here are some important questions to consider before you make a costly mistake.
Should I take early benefits?
You can start drawing Social Security payments at age 62, but your benefits are permanently reduced a fraction of a percent for each month before your full retirement age. Most recipients take the early payout, Social Security records show.
How to decide? Consider these factors:
Your health and your family history of longevity. If you're in good health and have a family history of longevity, you might be better off waiting. You'll have more years to draw a larger payment after your full retirement age.
Your employment status. If you're still working and want to draw early Social Security benefits, you might be penalized. For every $2 you earn above an income threshold (check with Social Security for the current amount), your Social Security benefits will be reduced by $1 if you do not reach full retirement age during that year. In the year you reach full retirement age, the penalty is lessened. Once you reach full retirement age, it ends.
The payoff for waiting. You can delay Social Security payments up until age 70 — a move that will permanently increase your payment. The increase varies, depending on your year of birth. According to the Social Security Administration, people born in 1943 and after can increase their payment 8 percent for each year after their full retirement age, up to age 70.
How can I calculate my benefits?
You don't need to. Social Security will do the complex calculations for you and provide you with a good estimate. In fact, about three months before each birthday, you should get a statement that shows your estimated benefits at various ages. The statement also includes a record of your earnings that determine your benefits, so be sure it is accurate. You can also use the Social Security Administration's online calculator and other resources at ssa.gov to get an estimate of benefits.
How will taxes affect my Social Security?
If you have other sources of income in retirement, some of your Social Security benefits may be subject to income taxes. About a third of people who get Social Security pay income tax on their benefits, according to the Social Security Administration.
Does Social Security Adjust for Inflation?
Since 1975, Social Security benefits have been adjusted each year for inflation. The cost of living allowance for 2008, for example, was 2.3 percent. That boosted the average monthly Social Security retirement check by $24, to $1,079.
What is my Spouse's benefit?
A spouse who has not worked or who has a low earnings history is eligible for Social Security benefits of up to half the benefit of the higher-earning spouse. A divorced spouse can qualify for such benefits if the marriage lasted at least 10 years.
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