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However, you might not want to. The years before you reach your full retirement age the Social Security Administration (SSA) will deduct $1 for every $2 of income above the income threshold of $19,500. Or $1 for every $3 of earning in the year you reach full retirement age, above $51,960. The dollars deducted will be added back to your benefit spread over your lifetime, so its not a total loss. But if you are planning to make over $19,500, you are healthy, your spouse is working, your spouse’s social security benefit is smaller, or your spouse is considerably younger it usually makes more sense to wait to collect.
The amount of benefit you receive is usually based on your full retirement age (FRA). If you were born between 1943 and 1954, your FRA is 66. If you were born from 1955 to 1960, your FRA increases gradually, from 66 to 67. Each birth year changes the FRA by 2 months. If you were born in 1960 or later, your FRA is 67.
For example, if you were born in 1960 or later, and took social security starting at 62, you would only receive 70% of your FRA benefits, and if you waited until 70, you would receive 124% of your FRA benefits. The average Social Security payment in 2022 was $1,6571. Which means if you started at 62, you would only receive $1,160. And if you waited until 70, you would receive over $2,054.
Your social security benefits will either be 0%, 50% or 85% taxable, depending on your “Combined Income”
Combined Income is calculated by adding together your Adjusted Gross Income (AGI) and your nontaxable interest and one half of your Social Security benefits.
There are multiple ways to calculate how much social security you are entitled to. Typically, you would want to select the one that gives you the highest income. Sometimes it may make sense to select something different, for a chance of higher income later.
Your options include 1. Your personal work history. 2. One half of your current spouse’s benefit. 3. Benefits based on a divorced spouse, one half of their benefits, so long as you were married for over 10 years and have not remarried. 4. Benefits from a deceased spouse, even if you were divorced, if you did not remarry before age 60. You are entitled to a survivor benefit amount, which can be calculated differently
There is a lot of complexity and nuances to social security. Making one wrong choice can affect your income for the rest of your life. If you would like to speak with a financial professional who will take the time to learn about you on a personal level and be able to provide comprehensive advice on social security and how it fits into the rest of your plan, give us a call, or send us an email.