I hope you learned something new from our last blog about taxes. Now I will outline some dates and rates about Social Security.
Do you know how your benefits are calculated? Benefits at Full Retirement Age (FRA) ares calculated based upon indexed (inflation-adjusted) earnings of your highest 35 years, subject to annual income caps (e.g., $160,200 in 2023).
The estimated average monthly Social Security benefit of a retired worker in January 2023 is $1,827 ($21,924/year) after an 8.7% Cost of Living Adjustment (COLA).
The average total for couples who are both receiving benefits is $2,972 ($35,664/year).
The maximum Social Security benefit for a worker retiring at Full Retirement Age in 2023 is $3,627 ($43,524/year).
To find out your own benefit information, go to MySocialSecurity: https://www.ssa.gov/. After you sign up for an account you can obtain your Social Security statement online or use the available tools to estimate your benefit under different scenarios.
Income Taxes on Social Security Benefits
Some portion of your Social Security benefit may be taxable. The amount that is taxable depends on your total income level.
Income Range Percent of Social Security
Single Married subject to tax
$0 to $25,000 $0 to $32,000 0%
$25,000 to $34,000 $32,000 to $44,000 50%
$34,000 + $44,000 + 85%
Many people question whether it really does pay to wait until age 70 to start collecting their hard-earned Social Security Benefits. It does.
Percent of Full Retirement Age (FRA) Benefit you will receive if you take Social Security Starting at:
Age FRA of 66 FRA of 67
62 |
75% |
70% |
63 |
80% |
75% |
64 |
87% |
80% |
65 |
93% |
87% |
66 |
100% (FRA) |
93% |
67 |
108% |
100% (FRA) |
68 |
116% |
108% |
69 |
124% |
116% |
70 |
132% |
124% |
So, if you plan to take Social Security at age 65 and your FRA is 66, you will receive 93% of your full benefits. If your friend also takes Social Security at age 65 but his FRA is 67, he will only receive 87% of the full benefit amount.
But, don’t worry if you filed early for benefits. The SSA does allow you to change your mind and withdraw within the first 12 months of collecting benefits. This is allowed only one time and you must pay back any money that you have collected (including Medicare payments that were deducted from your benefit).
Did you know that you can collect Social Security while you are still working? You can collect both Social Security and a paycheck.
However, the SSA will deduct from your benefit for each dollar you earn over an income level that they adjust annually. If you are still working and want to collect benefits before your FRA, the SSA will deduct $1 for every $2 you earn over the income cap. For 2023, the income cap is set at $21,240.
If you are still working in the year you reach your FRA, the income cap is set higher – at $56,520 for 2023 – and $1 is deducted for every $3 you earn. From the month when you reach your FRA, there is no limit on what you can earn.
Is everyone eligible for Social Security? Well, Railroad employees, some government employees and teachers at public schools and universities do not pay into Social Security. They pay into a different fund. Railroad workers, for example, pay the Railroad Retirement Tax, which is their equivalent to Social Security.
If one of the above types of employees did work long enough (about ten years) in an industry where Social Security was taken out of their paychecks, they may be entitled to a reduced Social Security benefit.
Finally, let me clarify how the survivor benefit works.
Number one, the widow or widower cannot receive survivor’s benefits before age 60. Two, the FRA for survivor’s benefits that is different from the individual’s FRA. Last, and this is where it gets complicated, if a widowed spouse is eligible for their own Social Security benefit, they can collect a survivor’s benefit and then file for their benefit when they choose, perhaps at their full retirement age or age 70. A lot will depend on whether they are working or have other income sources.
Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less. Marie Curie
I hope that I have helped you to understand the two things we’ll all experience – taxes and Social Security.
I can help you make decisions about tax and social security strategies. Please feel free to call (215-836-4880) or email the office (ellend@regardingyourmoney.com) to set up an appointment to discuss any investment questions you may have. Or, visit us at regardingyourmoney.com.
Source: Manning & Napier, Alyson Dorosky