How Does the Social Security Administration Calculate Benefits? Photo credit: © iStock/KenTannenbaumīenefits also depend on how much money you’ve earned in life. The bottom line: You’re eligible for Social Security Benefits if you’ve paid into the system for at least a decade, but your actual benefits will depend on what age – between 62 and 70 – you begin to claim them. Conversely, you can claim as early as age 62, but taking benefits before your full retirement age will result in the Social Security Administration docking your monthly benefits. But if you claim later than that - you can put it off as late as age 70 - you’ll get a credit for doing so, with larger monthly benefits. You are eligible for your full benefits once you reach full retirement age, which is either 66 and 67, depending on when you were born. Who Is Eligible for Social Security Benefits?Īnyone who pays into Social Security for at least 40 calendar quarters (10 years) is eligible for retirement benefits based on their earnings record. That's why it’s important to know all the rules surrounding eligibility, benefit amounts, taxation and more.ĭo you need help managing your retirement savings? To find a financial advisor who serves your area, try our free online matching tool. And even if you have other income sources in retirement, Social Security can make up a significant part of your retirement income plan. Still, many people do find themselves in the position of having to live off their Social Security checks. After all, Social Security wasn’t designed to make up a retiree’s entire income. And regardless of whether you think Social Security’s future is secure, the fact remains that you shouldn’t plan on living exclusively off your Social Security benefits. These days there’s a lot of doom and gloom about Social Security’s solvency - or lack thereof. Social Security claiming strategies at a glanceCalculate My Social Security Income Photo credit: © iStock/Zinkevych In this scenario, their total taxes would be slightly higher in the years before they claim Social Security benefits, but lower taxes after age 70 would offset the initial tax cost in less than 2 years. Using the same assumptions (no additional income and the standard deduction), only 34% of the couple's Social Security benefits would be taxable, and their federal taxes would total $2,086. In the years between their retirement and age 70, Michael and Patricia would need to take additional taxable distributions from their IRAs.īut at age 70, they'd receive $42,240 in Social Security benefits, meaning they'd need only $32,760 in IRA withdrawals, including required minimum distributions (RMDs). Scenario 2: Delaying benefits until age 70 Michael and Patricia anticipate a pre-tax retirement income of $75,000, consisting of $24,000 from their Social Security benefits and $51,000 in taxable distributions from their IRAs.īased on their earnings history at age 62, 85% of their Social Security benefits would be taxable.Īssuming no other income and using the standard deduction, Michael and Patricia would owe $5,307 in federal taxes. The following scenarios illustrate how taking Social Security benefits early versus delaying until age 70 affects the federal taxes of this married couple, who are both age 62. One married couple's tax-efficient Social Security strategy
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