While many downplay Social Security’s significance as a small bonus on top of their 401(k), it actually replaces about 40 percent of an average wage earner’s income after retiring. The minimum benefit for someone who has worked more than 30 years is $848 monthly at full retirement age. The maximum benefit in 2018 at full retirement age is $2,788 monthly. To be eligible for these benefits, you must have worked at least 40 lifetime work credits/quarters, or 10 years.
You have flexibility as to when to begin receiving benefits. You can take the “tomorrow is never guaranteed” approach and collect immediately at age 62. Taking your benefits early results in a reduced rate of about one-half of 1 percent for each month before your full retirement age. Other retirees may delay to age 70, the longest you can defer while still increasing your benefit by 8 percent annually.
Fifty percent of your benefit may be federally tax-free for Joint Filers making below $44,000 of combined income, whereas only 15 percent is exempt after this amount. The social security tax for employees still working is 6.20 percent of earnings up to $128,400 of taxable earnings.
Continuing to work in your 60s can have a drastic impact. If you work and start receiving benefits before full retirement age, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($17,040). If you continue to work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($45,360 in 2018) until the month you reach full retirement age. Once you have attained full retirement age, you can keep working and your benefits under current law will not be reduced, regardless of how much you earn.
Other family members may also be eligible for payments. A spouse qualifies for benefits if he or she is age 62 or older, or at any age if he or she is caring for your child (who must be younger than 16 or disabled). A spouse is entitled to his/her own benefit or 50 percent of your benefit, the higher of the two. Benefits may also be paid to your unmarried children if they are younger than 18 or between 18 and 19 and enrolled in a secondary school as a full-time student, or if they are age 18 or older and severely disabled.
Should you die, your family may continue receiving benefits based on your work record. Family members who qualify include: A widow over age 60 (or 50 if disabled). Unmarried children under 18 (19 if a full-time student). A disabled child (the disability must have started before age 22).
Divorcees who were married for at least 10 years, divorced 2 years or longer, unmarried, and at least 62 years old are entitled to 50 percent of their ex’s benefit once they reach full retirement age. Your benefits are unaffected should your former spouse elect to take Social Security before reaching full retirement age or if your ex-spouse starts a new family.
About the Author: Bryan M. Kuderna is a CERTIFIED FINANCIAL PLANNER™, Life Underwriter Training Council Fellow, and investment adviser representative with Kuderna Financial Team.