What You Need To Know About Social Security Retirement Benefits Your promotional imprint here and/or back cover. ABC Company 123 Main Street Anywhere, USA 12345 www.sampleabccompany.com 800.123.4567
When you re planning for retirement, you ll want to consider how Social Security benefits fit into your retirement income picture. Even if Social Security benefits will represent only a small portion of your overall retirement income, you should plan carefully to make the most of them. What To Expect While you re working and paying Social Security taxes, you earn Social Security retirement credits. As long as you ve earned 40 credits basically, you ve worked a total of 40 quarters or 10 years during your career you generally can expect to receive Social Security benefits. How much will you receive? Your benefits are based on your work earnings history. You can get an estimate of your future retirement benefits by looking at Your Social Security Statement which you may receive in the mail or can access securely on the Social Security Administration website (www.ssa.gov). You may be able to receive a spousal benefit of up to half your spouse s full benefit even if you don t qualify for benefits on your own work record or you have low earnings. The spousal benefit would be available if you are at least 62 years of age and your spouse is receiving or is eligible to receive retirement benefits. Divorced individuals who were married at least 10 years and are now unmarried may claim spousal benefits based on their ex-spouses work records, and widows and widowers may claim benefits based on their deceased spouses work records. Deciding When To Start When you choose to begin receiving benefits will substantially affect the amount of your monthly 1
payments. The table shows when full benefits are available based on the year you were born. You may begin collecting benefits as early as age 62. However, your benefit will be permanently reduced to 70% 75% of your full benefit. Taking benefits before your full retirement age (FRA) also permanently reduces any spousal benefit you may be entitled to (see table). FULL RETIREMENT AGE AND AGE 62 BENEFIT REDUCTION Birth Year Full Retirement Age/ Full Benefit Benefits at Age 62 Are Reduced by Spousal Benefits at Age 62 Are Reduced by 1943 1954 66 25% 30% 1955 1956 1957 1958 1959 2 months 4 months 6 months 8 months 10 months 25.83% 30.83% 26.67% 31.67% 27.5% 32.50% 28.33% 33.33% 29.17% 34.17% 1960 and later 67 30% 35% Source: Social Security Administration Making the decision whether to take benefits early or to wait is a complicated one. By delaying, you forego monthly Social Security payments you could reinvest elsewhere, but you stand to receive a higher benefit amount once you begin taking your benefits. You might want to ask your financial advisor to help you determine your crossover point that is, the point at which the increase in payments you d gain by waiting would make up for the payments lost during the waiting period. Similarly, someone in poor health or with a shorter life 2
expectancy might want to take benefits earlier rather than later. For each year after your FRA (up until age 70) that you choose to delay taking Social Security, you earn delayed retirement credits that increase your future benefit by 8% annually (in addition to any yearly cost-of-living adjustment). Moreover, if you continue working and delay taking Social Security, you might increase the wage base from which future Social Security benefits will be calculated. Working After You Begin Benefits Until you reach your FRA, there s a potential pitfall associated with having earnings from work. The Social Security Administration will withhold some of your benefits once you earn more than a specified amount (adjusted annually for inflation). For example, in 2015, Social Security benefits are reduced $1 for every $2 you earn above $15,720. During the year you reach FRA, benefits are reduced by $1 for every $3 you earn above $41,880 (the 2015 threshold) until the month you reach FRA. However, at FRA and older, you can earn as much as you want without any withholding of your Social Security benefits. If You re Married Married couples should carefully consider how they want to sequence their benefits. One strategy to consider is called file and suspend. This strategy generally works best if one spouse wants to continue working but the other wants to begin taking benefits, and his or her benefit is less than half of the working spouse s. Here s how it works: The working spouse files for Social Security at FRA so the other spouse can claim a spousal benefit. Then, the working spouse immediately suspends his or her own benefits so they can continue to grow at 8% annually until he or she chooses to take 3
them (as late as age 70). In the interim, the non-working spouse collects spousal benefits. A slightly different strategy, sometimes called the restricted application, can be beneficial when both spouses are at FRA and one wants to earn delayed retirement credits. Here, the spouse who wishes to keep working makes an application to take benefits at FRA but deliberately restricts that application to spousal benefits only. The advantage? The spouse who delays can collect spousal benefits while his or her own benefits continue to grow at the 8% annual rate. The other spouse may then either begin collecting Social Security or file and suspend so that his or her benefits can also grow at the 8% annual rate. Watch Out for Income Tax Depending on your income, a portion of your Social Security benefits may be subject to federal income tax. Income for this purpose consists of your modified adjusted gross income, your tax-exempt interest income, and half of your Social Security benefits. Your Social Security benefits aren t taxable if your income isn t more than $25,000 (single/head-ofhousehold filer) or $32,000 (married filing jointly). Up to 50% of benefits are taxable if you have income between $25,000 and $34,000 (single/head of household) or $32,000 and $44,000 (married filing jointly). Up to 85% of benefits are taxable if you have income of more than $34,000 (single/head of household) or $44,000 (married filing jointly). You may be able to use various tax planning strategies to reduce or avoid income tax on your Social Security benefits. 4
As you approach retirement, you should be looking at ways to make the most of your potential retirement income from Social Security, your employer s retirement plan, and your own savings and at your projected expenses to determine if your retirement lifestyle will live up to your expectations. The sooner you begin the process, the better. The general information provided in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any actions, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation. This publication was prepared for the publication s provider by DST, an unrelated third party. The content was not written or produced by the provider. Copyright 2013-2015 by DST FR2015-0204-0032/E 2/15 5
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