9 things most retirees do not know about social security
9 things most retirees do not know about social security

9 things most retirees do not know about social security

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Social security is a valuable program that ensures that retirees have an income to rely on in their golden years. But many Americans do not understand how it works.

Learn: Understand the basics of social securityRetirement: 14 key signs that you are running out of money when you retire

Just over a third of the soon-to-be pensioners (aged 55 to 65) failed, and a further 18% received grade D on a basic knowledge quiz on Social security pension benefits by MassMutual. Only 3% got an A + by answering all 12 true / false statements correctly.

Knowing the ins and outs of social security will ensure that you get the full benefit of your benefits and avoid leaving money on the table. Here are nine facts about social security that you may not be aware of.

See: All states that do not tax social security

Social security will not disappear

It is true that Social Security Trust Fund reserves are set to be depleted by 2035, and many Americans worry that there will be no benefits available when they retire.

“This fear causes many people – to their detriment, most likely – to start reaping benefits as soon as they are able to, so they can have it while it lasts,” said Taylor Jessee, a CPA, CFP and Director of Financial Planning to Taylor Hoffman Wealth Management.

However, social security is largely financed by payroll taxes, which will continue to be levied in the foreseeable future.

“I warn today’s retirees that social security is unlikely to go away any time soon,” Jessee added.

Social security is not enough to live on in retirement

Most people cannot live on social security. On average, it will provide 30% to 40% of your early retirement income.

“Nevertheless, social security services are still valuable, so you want to do what you can to maximize them,” said Jackie King, a financial advisor at Edward Jones.

The more you invest in a pension scheme such as a 401 (k) or IRA, the more flexibility you get in managing your retirement costs because you have more sources of income to pair with social security.

“So try to contribute as much as you can afford these plans,” King said.

When social security expires: This is what the program will look like in 2035

The benefits are based on your highest 35 years of earnings

Are you worried that several years with a lower salary will have a negative impact on how much you receive in social benefits?

The good news is that the formula for calculating your benefit is based on your 35 highest earning years, as well as the age at which you start taking Social Security, according to King. If you are curious to know how much you are expected to get, she said you can Sign up to receive an annual statement from the Social Security Administration providing an updated estimate.

Your personal situation means more than your age

The longer you wait to take out social security, the more money you will receive.

You can claim it as early as you are 62 years old, for reduced benefit. Waiting for your full retirement age means you are entitled to your full benefit. If you stay free until you turn 70, you get 132% of your full benefit.

But waiting as long as possible to get your benefits is not always the best move.

“Your needs come first,” said Stephan Baldwin, founder of Assistant Center.

For example, he said that if your spouse died, it may make more sense to apply for survivors’ benefits instead of waiting for full benefits. So be sure to evaluate all your options.

Are you doomed to work forever? What you can do if your social security is not enough

You can claim the benefits of your ex

Even if you are no longer married, Baldwin said you may be able to claim spousal benefits. To qualify, your marriage must have lasted more than 10 years, you must be at least 62 years old, and you cannot remarry. You can also claim 100% of the survivor benefit if your former partner is dead, Baldwin noted.

You get the greater benefit if your spouse dies

If both spouses in a marriage receive social benefits, the minor benefit disappears when a person dies. It does not matter who dies first – the surviving spouse will start receiving the greater of the two benefits.

“That’s why couples should focus on increasing the higher benefit,” said Jeremy Keil, a retirement-focused financial planner with Keil Financial Partners and hosted Retirement revealed blog and podcast. “It is the one who will stay the longest and be there to help the widow (s).”

Some of your benefits may be withheld

If you claim your benefits before you reach full retirement age, still work and earn more than the annual income limit, you may have some of your social benefits withheld.

The ceiling is $ 19,560 for 2022 and you will lose $ 1 in benefits for every $ 2 in earnings above max.

But you do not really lose the advantage. “You do not get it while you are under full retirement age; but as soon as you reach that age, Social Security will recalculate and give you credit for those dollars, ”Kell explained.

More about this: Everything you need to know about charging social security while you are still working

You can undo a decision on social security benefits

If you decided to claim your benefits and then realized you should have waited, the Social Security Administration will allow you to withdraw your application for a one-time do-over.

“There are a multitude of reasons why someone may regret the decision to start taking social security,” said Jordan Kahn, a CFA and chief investment officer for HCR Wealth Advisors.

For example, you may decide to take on a part-time job and no longer need the extra income. Or maybe you were not aware of how much more money you could receive by waiting a few more years.

“If a person makes this decision within 12 months of submitting their initial application, they can stop receiving benefits and move on as if they had never claimed them,” Khan said.

However, you must repay all benefits you have received during that period.

You may have to pay tax on social benefits

Many Americans pay taxes on their social benefits. The exact amount you have to pay depends on your total income.

“It doesn’t take much income before your services are taxed,” Kahn said.

If you are a single philistine and earn between $ 25,000 and $ 34,000, you may have to pay income tax of up to 50% of your benefits. If you earn more than $ 34,000, up to 85% of your benefits may be taxable. For co-applicants, if you and your spouse have a total income of between $ 32,000 and $ 44,000, you may have to pay income tax of up to 50% of your benefits. If your total income is more than $ 44,000, up to 85% of your benefits may be taxable.

In addition to paying federal income tax on your benefits, Kahn noted that 12 states also levy income tax on social security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

If you are worried about your tax bill on retirement, it is a good idea to talk to a professional who can help you find ways to lower your taxable income.

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