The Social Security Act was signed into law on August 14, 1935, and it didn’t take long for people to start asking questions about the program. While Social Security might seem straightforward at first—contribute during your working years and receive income upon reaching a certain age—the reality is a bit more intricate. The Social Security Handbook (ssa.gov) contains 27 separate sections on the topic. To keep things manageable, I’ve addressed some of the most frequently asked questions about Social Security.
Frequently Asked Questions
1. Who is eligible for Social Security?
To qualify for retirement benefits, you must have accumulated enough work credits based on your earnings record. You can earn one work credit per quarter, up to a maximum of four per year. To be eligible for retirement benefits, you need at least 40 credits, which equates to 10 years of consecutive work.
2. What are Social Security Spousal Benefits?
If you don’t have enough credits to qualify for benefits on your own record, or if your own benefit is relatively small, you might be eligible for spousal benefits. Your spouse must already be receiving benefits for you to qualify on their work record. If your spouse isn’t receiving retirement or disability benefits, you’ll need to wait until they do. The spousal benefit can be as much as half of what your spouse is eligible for at full retirement age.
3. At what age can I start taking Social Security?
You can begin receiving benefits as early as age 62, but your monthly benefits will be permanently reduced if you start before your Full Retirement Age (FRA). For those born in 1960 or later, FRA is 67. If you were born before 1960, refer to the FRA chart linked here. Delaying benefits past FRA can increase your monthly benefit due to delayed retirement credits. The latest you can start receiving benefits is age 70.
4. When should I elect to start receiving Social Security?
The best time to start receiving benefits depends on your personal circumstances, such as your employment status, financial needs, life expectancy, and eligibility for benefits on another record. Consulting a financial planner can help you analyze various scenarios and their impact.
5. What about Medicare and Social Security?
If you’re approaching age 65 but haven’t started receiving Social Security, you still need to enroll in Medicare. Your Medicare initial enrollment period begins three months before you turn 65 and continues for three months after your 65th birthday. Failing to enroll during this period could result in late enrollment penalties and coverage gaps.
6. How much Social Security will I get?
The formula for calculating Social Security is complex. It is important to note that benefits are based on your lifetime earnings, considering your highest 35 earning years. You can create a my Social Security account and view actual benefit estimates at any time. It is a best practice to review your earning history when looking at statements because sometimes income may not be properly reported to Social Security.
7. Do I owe Taxes on Social Security?
Yes, if you have income (wages, interest, dividends, and other taxable income) in addition to your benefits you will pay taxes on your benefits.
- Filing Single if combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your income exceeds $34,000, up to 85% of your benefits may be taxable.
- Filing Joint if combined income is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If your income exceeds $44,000, up to 85% of your benefits may be taxable.
8. Can I file and continue to work?
Yes, but be aware of income limits.
- If you are below FRA in 2024, you can earn up to $22,320 without impacting your Social Security benefits. Earnings above this limit will reduce your benefits by $1 for every $2 earned.
- If you are in the year you reach FRA, you can earn up to $59,520 without impacting your benefits. Earnings above this limit reduce your benefits by $1 for every $3 earned. Note that only earnings up to the month before you reach FRA are considered.
Once you reach your FRA, there is no limit to how much you can earn without affecting your Social Security benefits.
9. Do I have to choose the same options as my spouse?
No, you and your spouse can choose different benefits options based on your respective ages and earning histories. It’s crucial to explore all available options and strategies that best suit your individual circumstances.
10. How do I apply for Social Security Retirement Benefits?
You can apply for retirement benefits up to four months before you want to start receiving them. Even if you’re not yet ready to retire, you should sign up for Medicare three months before your 65th birthday. The easiest way to apply for benefits is online through your “my Social Security” account. If your application cannot be processed, you’ll receive instructions on how to contact Social Security by phone or schedule an appointment.
Social Security plays a vital role in replacing your paycheck during retirement, and the decisions you make in your 60s can have long-term impacts. It’s important to work with your advisors to understand your needs and determine the best strategy for your personal situation.
This document is being provided for informational and educational purposes and is not meant to be taken as specific advice. Oakworth Capital Bank does not provide tax or legal advice. All decisions regarding the tax and/or legal implications of these strategies should be discussed with your tax and/or legal advisors before being implemented.