How are my Social Security benefits calculated?
Your monthly benefit amount is based on your highest 35 years of earnings. Your low earnings years in the beginning of your career are dropped. If you do not have 35 years of earnings, your monthly benefit will be reduced since years without earnings are not counted. You can see what your estimated monthly benefit is by creating an account at The Social Security Administration online at www.SocialSecurity.gov and using the Retirement Estimator tool at www.SocialSecurity.gov/retire/estimator.html.
Will my Social Security benefits by taxed?
The simple answer is yes, Social Security is taxable. However, to determine if you must pay taxes on your Social Security benefits depends on your income level. According to the IRS, a quick way to find out if you will pay taxes on your Social Security income is to take one-half of your Social Security income and add that to all other income, including tax exempt interest. This number is known as your “combined income”. If your combined income is above $25,000 if you are single (or head of household) or $32,000 for married filing jointly, your benefits may be up to a maximum of 85% taxable.
For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have combined income of more than $44,000, you will pay taxes on up to 85% of you Social Security.
When should I file for my Social Security retirement benefits?
You can start receiving benefits as early as age 62. However, the longer you wait, up to age 70, the higher your monthly benefit will be…for the rest of your life. You may be able to earn up to 32% more in monthly benefits by waiting. You should not delay filing past age 70, as there is no increase in benefits after age 70. Your longevity and health are a few of the very important factors to consider when deciding when to file for benefits and whether you should file early or delay filing. Once you have decided to apply, you may do so up to four months before you want your benefits to begin.
What is Medicare and when should I apply for Medicare?
Medicare Part A is for hospitalization insurance and is free for most people. Medicare Part B is for medical insurance and requires a monthly premium. Consider applying for Medicare at age 65 even if you are not applying for monthly Social Security benefits. Because Medicare Part A is free, it pays to enroll as soon as you’re eligible at age 65. Signing up for Medicare Part B may depend on if you have health insurance through your employer and if you are still working. Your company’s group health insurance plan may serve as your primary health insurance. Be aware that signing up for Medicare late may result in an increase in your Part B premium if you do not have group health coverage through your employer. If you are still working and are employed by a company with 20 or more employees and have health insurance through that company, you can delay applying for Medicare Part B without facing a penalty. You should speak with your employer’s health benefits administrator so that you understand how your current coverage works with Medicare.
We can help
For many people, Social Security is a core component of their income in retirement. We can assist you in understanding this process and in developing a retirement plan that seeks to maximize your benefits.