Will retirement at age 58 lower future Social Security amounts?

Q: If I retire at age 58, will the loss of earnings hurt my Social Security retirement at age 62?

A: An early retirement will probably reduce the amount of your future Social Security because a person’s highest earning years are usually near retirement.

Your Social Security retirement monthly amount is based on your best 35 years of employment, weighted for inflation, and your age, in months, compared to your full retirement age (FRA).

If your earnings record is blank for several years, those years will not be available to replace years of lower earnings when your retirement amount is computed. You can estimate the effect of lower or higher future earnings, or retirement at different ages, with the Retirement Estimator at www.socialsecurity.gov/estimator/.

One of the Social Security retirement planning tools in the Retirement Planner section at www.socialsecurity.gov/retire2/, the Estimator connects to your actual Social Security earnings record to provide personal retirement estimates at age 62, at your full retirement age (FRA), and at age 70. As a security measure, you are asked for personal information before being able to use the Estimator.

Just as on your Statement estimate, the initial Retirement Estimator reply assumes your most recent wages or self-employment earnings will continue into the future. Unlike the Statement, with the Estimator you can change the default reply to obtain estimates at different ages or with different future earnings amounts.

Comparing multiple estimates for any given age based on the initial earnings level and then with lower or higher earnings provides an approximate result of different earnings on your future SSA retirement amount. With separate requests, you can estimate benefits based on either lower or higher earnings. Future earnings of more than one amount cannot be used in one estimate.

The Retirement Estimator provides good estimates at different ages, such as 62, but not for specific months. For estimates in specific months, other online tools are available in the Retirement Planner section. If your interest is only for months before your full retirement age (FRA), use the chart for your FRA. To consider months either before or after your FRA, use the “Compute the effect of early or delayed retirement” calculator. FRA ranges between age 65 and 67 based on year of birth but is 66 for birth years 1943-1954.

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When to report work for the annual earnings test

Q: I retired last year, started Social Security, and expect to work part-time this year on a fill-in basis. If I reach the retirement earning limit amount for the year, is it my responsibility to notify Social Security? Are benefits reduced for work immediately or resolved at years’ end. I am 63.

A: Yes, it is your responsibility to contact Social Security. Report your estimated earnings for the calendar year as soon as you think your earnings will exceed the annual limit for your age. You can provide updated estimates during the year as needed for changes up or down.

Providing an estimated earnings amount to Social Security is needed when you expect to earn more than your earnings limit amount during the calendar year. For example, at age 63 in 2015, you are under full retirement age (FRA) for the entire year and must provide an estimate if expected gross wage earnings will exceed $15,720. An estimate is not needed when annual earnings are expected to below the earnings limit.

Adjustments based on your estimated earnings will take place as soon as possible in order to avoid having you incorrectly paid. The usual suggestion to people expecting to earn over the annual limit for their age is to provide an estimate as accurate as possible, but to the high side.

Later, when you receive your W-2 form at the end of the year, report your actual earnings for the year directly to Social Security. Based on your actual earnings, final adjustments are made to either send you benefits due or to withhold those incorrectly paid.

A list of your various Social Security reporting responsibilities is in the booklet, What You Need to Know When You Get Retirement Or Survivors Benefits, available online. Work activity is a topic discussed over several pages of the booklet and an excerpt from page 17 includes:

“Your earnings estimate and your benefits

We adjusted your benefits this year based on the earnings you told us you expected to receive this year.

If other family members get benefits on your record, your earnings may affect the total family benefits. But, if you get benefits as a family member, your earnings affect only your benefits.”   

“Revising your earnings estimate

When you work, you should save your pay stubs. If during the year, you see your earnings will be different from what you estimated, you should call us to revise the estimate. This will help us pay you the correct amount of Social Security benefits.”  

More about working while receiving Social Security retirement or survivors benefits is here.

Divorced spouse benefits

Q: My ex-husband always earned much more than I did and I anticipated receiving Social Security through his record when he retired.

His retirement plans changed after our divorce and now he expects to continue working for several more years, or at least until he is much older than 62.

Can I receive Social Security as a divorced spouse from his Social Security record before he retires?

A: Yes, this is possible assuming all requirements are met. General requirements to receive Social Security benefits as a divorced spouse are here and include that:

  • the marriage lasted 10 years or longer
  • you are unmarried
  • you are age 62 or older and
  • you are not eligible for a higher Social Security through your own work than you would through the record of your ex-spouse.

When receiving benefits through an ex-spouses record, that person is usually receiving benefits too but an exception exists which could let you receive benefits  before your former husband starts Social Security.

If your ex-spouse has not applied for retirement benefits, but can qualify for them, you potentially could receive benefits through his record if you have been divorced for at least two years. To qualify for benefits means that your ex-spouse has enough work and has reached age 62.

You would be known as an “independently entitled divorced spouse” for SSA benefit purposes if you receive benefits this way.

 

SSA Annual Statistical Supplement, 2014, available

The Social Security Annual Statistical Supplement, 2014, is available now.

Prepared annually since 1940, the Supplement is a major resource for data on our nation’s social insurance and welfare programs. The majority of the statistical tables present information about programs administered by the Social Security Administration—the Old-Age, Survivors, and Disability Insurance program (OASDI), known collectively as Social Security, and the Supplemental Security Income (SSI) program.

In addition, data are presented on the major health care programs—Medicare and Medicaid—and social insurance programs, including workers’ compensation, unemployment insurance, temporary disability insurance, Black Lung benefits, and veterans’ benefits. The Supplement also includes program summaries and legislative histories that help users of the data understand these programs.

There is a wealth of useful information in the Supplement. View the Table of Contents and find the topics of interest to you.

Here are some tidbits from the Highlights and Trends section:

Social Security:

About 58.0 million persons received Social Security benefits for December 2013, an increase of 1,220,425 (2.2 percent) since December 2012. Seventy percent were retired workers and their spouses and children, 11 percent were survivors of deceased workers, and 19 percent were disabled workers and their spouses and children.

  • Seventy-three percent of the 37.9 million retired workers received reduced benefits because of entitlement prior to full retirement age. Relatively more women (75.4 percent) than men (70.3 percent) received reduced benefits.

Supplemental Security Income:

  • In December 2013, 8,363,477 persons received federally administered SSI payments—100,600 more than the previous year. Of the total, 2,107,524 (25.2 percent) were aged 65 or older; 4,934,272 (59.0 percent) were blind or disabled aged 18–64; and 1,321,681 (15.8 percent) were blind or disabled under age 18.

Medicare:

Number of enrollees in July 2013 (one or both of Parts A and B)   52.4 million

Aged                                     43.6 million

Disabled                                   8.8 million

Unemployment: Total payments, 2012    $42.6 billion

Workers Compensation: Benefit payments, 2012  $61.8 billion

Veterans’ Benefits:

Number of veterans with disability compensation or pension, 2013

Service-connected disability                     3,734,000

Nonservice-connected disability                   305,000

Poverty Data:

Percentage of population with income below poverty level, 2013

All ages                                                              14.5 percent

Children under age 18 living in families              19.5 percent

Persons aged 65 or older                                     9.5 percent

2014 Statistical Report

Social Security disability work incentives

Q: I receive Social Security disability and want to return to work. What will this do to my benefits?

A: For specific information about your own benefits, contact Social Security and speak with a representative.

In general, special rules called work incentives make it possible for people with disabilities receiving Social Security or Supplemental Security Income (SSI) to work and still receive monthly payments and Medicare or Medicaid.

Remember that Social Security, including disability (SSDI), and SSI are different programs, with different work incentives for returning to work.

Always report a return to work. This is very important. Also report related changes including stopping the work.

For Social Security disability, a main work incentive is the trial work period (TWP).

The trial work period allows you to test your ability to work for at least 9 months. During a trial work period, you receive full disability benefit regardless of how much you earn as long as your work activity has been reported and you continue to have a disabling impairment. The 9 months does not need to be consecutive and your trial work period will last until you accumulate 9 months within a rolling 60-month period. Certain other rules apply. In 2015, gross monthly earnings of $780 or more will usually count as a month toward the TWP.

After a trail work period is completed, your work activity will be reviewed to see if you earnings are considered substantial gainful activity (SGA) . Exceptions apply but, in general, in 2015 monthly gross earnings of at least $1,090 are considered SGA for a person who is not blind and $1,820 for a person who is blind. Ongoing ability to work at a substantial gainful activity level can result in benefits being stopped.

If this occurs, you have an extended period of disability (EPE).

This means that if your disability benefits stop after successfully completing the trial work period and ongoing work at the substantial gainful activity (SGA) level, your Social Security disability benefits can be automatically reinstated without a new application for any months in which your earnings drop below the SGA level.

This reinstatement period lasts for 36 consecutive months following the end of the trial work period. You must continue to have a disabling medical impairment in addition to having earnings below the SGA level for that month.

Continuation of Medicare.

Of major importance, even if cash benefits end, for most beneficiaries existing Medicare coverage continues through the EPE and beyond.

Most persons with disabilities who work will continue to receive at least 93 consecutive months of Hospital Insurance (Part A); Supplemental Medical Insurance (Part B), if enrolled; and Prescription Drug coverage (Part D), if enrolled, after the 9-month Trial Work Period (TWP).

You do not pay a premium for Part A. Although cash benefits may cease due to work, you have the assurance of continued health insurance. (93 months is 7 years and 9 months.)

This is not a complete list of work incentives for Social Security disability insurance (SSDI). There are different work incentives for Supplemental Security Income (SSI). More general information is here.

Again, for details about your own benefits, speak to a Social Security representative.

Work_Incentive

FRA and the SSA Amendments of 1983

Regular readers know that your full retirement age (FRA) is based on year of birth and ranges from age 65 for people born in 1937 or earlier, to age 67 for people born in 1960 and later. FRA is age 66 for people born in 1943 – 1954.

Full retirement age is the age at you can first become entitled to full or unreduced retirement benefits. Starting Social Security retirement when younger than FRA results in a reduced benefit amount. Starting retirement when older than FRA results in an increased amount.

While not that often anymore, I continue to meet people who are not aware that FRA varies and they usually ask when this came about. Learning that this change was part of the 1983 Social Security Amendments is a second surprise to them, especially when they realize that these FRA changes are still being phased in.

Why was full retirement age changed in 1983?

In the early 1980’s the Social Security program faced a serious short-term financing crisis. President Reagan appointed a blue-ribbon panel, the National Commission on Social Security Reform, known as the Greenspan Commission, to study the financing issues and make recommendations for legislative changes.

Resulting legislation, Public Law 98-21, the Social Security Amendments of 1983, was signed into law on April 20, 1983, by President Ronald Reagan (signing ceremony photo). It included the changes to full retirement age.

In addition to increasing full retirement age over many years, the 1983 Amendments made numerous other changes in the Social Security and Medicare programs including the taxation of Social Security benefits and the first coverage of Federal employees.

The 1983 Amendments also provided Social Security coverage for all Members of Congress, the President and Vice-President, Federal Judges and other executive-level political appointees of the Federal Government.

There were many other provisions to the legislation. You can read a summary of the 1983 Amendments here.

Today is the 32nd anniversary of the signing of the 1983 Amendments by President Reagan.

 

April is Financial Literacy Month

April is Financial Literacy Month, a time to evaluate efforts to save, invest, and plan for your future. Planning for retirement is an essential long-term goal and a critical step on the road toward financial health. Now is a good time to start planning, no matter what your age so that time and compound interest works to your advantage.

Get a good estimate of your future SSA retirement amount with the Social Security online Retirement Estimator, one part of the SSA retirement planner. The estimator connects to your actual work record to provide a personal estimate. You can change the default estimates for those more in tune with your actual plans.

For those years from retirement, create a my Social Security account and use it to view your Social Security Statement. The Statement shows the earnings on your Social Security record but, more to the point of financial planning, has estimated personal and family benefits should you become disabled or die as well as for retirement. This information helps you arrange other parts of your financial planning.

Social Security personnel cannot assist with financial planning. Select your own helpers for this. Two websites to help you get started are www.mymoney.gov, the official U.S. government website dedicated to teaching Americans the basics of finances, and the Ballpark Estimator at www.choosetosave.org/ballpark, part of the American Savings Education Council program, which includes the Social Security Administration.

These sites, and others like them, are not just about savings for retirement. There are reasons to save for every stage of life.

April is Financial Literacy Month. Now is a good time to review your existing plan, or start one.

Disability is Social Security

I participate in a listener call-in radio show and a recent caller asked about Social Security disability. At age 53, he was found eligible for Social Security disability benefits and wanted to know what effect this would have on his future “real” Social Security, meaning retirement. His question provides today’s topic.

First, Social Security disability benefits are real Social Security, just another part of the program. The three parts of Social Security are retirement, survivors and disability.

Full retirement age (FRA) is a frequent topic when discussing Social Security retirement. Based on year of birth, it is the specific age that a person becomes eligible for a retirement amount that is neither reduced nor increased from the full retirement age amount. Benefits started prior to FRA are reduced by the number of months involved while benefits started afterward are increased in a similar way.

When determined eligible for Social Security disability, a person is essentially said to have reached full retirement age and their benefit amount is not reduced for age, even if they are actually much younger than their retirement FRA. Benefit amounts for disability are based on your career earnings, much as they are for retirement or survivors benefits.

Assuming a person remains eligible for Social Security disability, there is no change in benefits received once they actually reach their retirement FRA. All that would take place is an internal SSA change moving them from disability to retirement, without any visible change to the person’s benefits.

If a person went off disability and later became eligible for retirement, the years of none or low earnings while on disability would not be used to compute the retirement amount.

Medicare coverage begins after a person receives disability benefits for two years. Whether based on disability or retirement, the Medicare coverage is the same.

To estimate your own Social Security disability amount, create a my Social Security account and view your personal Statement. It contains an estimated amount that assumes you become disabled this year.

Learn more about Social Security disability here.

Reduction percentages for early retirement

If you start Social Security retirement before your full retirement age (FRA), how much of a monthly reduction will you take?

It depends on far away you are from FRA, at times called normal retirement age on the Social Security website, www.socialsecurity.gov. Starting your retirement when younger than FRA is called early retirement.

Regular readers know that Social Security retirement amounts are partly based on the number of months that you are younger than full retirement age. For example, if starting benefits 19 months before FRA, they are reduced by 19 months.

Based on year of birth, full retirement age ranges from age 65 to 67. It is age 66 for birth years 1943 – 1954. From the FRA chart you can see the amount of monthly retirement payable after reduction for age from age 62 to FRA for any given year of birth.

A recent question made me realize that I have not recently discussed the actual percentage amount of a monthly reduction. For retirement, two different monthly percentages could apply, depending again on the number of months that you are younger than full retirement age.

For early retirement, a benefit is reduced 5/9 of one percent for each month before full retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when full (normal) retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.

Today’s topic was just about early retirement, when starting benefits before reaching full retirement age. Up to age 70, retirement benefits increase at a monthly rate of 2/3 of 1 percent for delayed retirement, when started after FRA. Called delayed retirement credits, this works out to an eight percent annual increase.

Looking for Social Security retirement information? Go to the SSA Retirement Planner at http://www.socialsecurity.gov/planners/retire/ for information, calculators, and ideas to consider. All of today’s information is there, and much more.

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Voluntary tax withholding from Social Security benefits

People filing application to start Social Security benefits often ask if taxes are withheld from their monthly payments. They are not. Taxes are not routinely withheld from Social Security benefits.

Especially during this time of year as people pay their Federal income tax, another popular question is whether taxes can voluntarily be withheld from Social Security payments. Yes, you can arrange this.

If desired, you can request voluntary Federal tax withholding from your monthly Social Security benefits. You may find doing this easier than paying quarterly estimated tax payments. See http://www.socialsecurity.gov/planners/taxwithold.htm.

To start voluntary Federal tax withholding you need to complete Internal Revenue Service (IRS) Form W-4V, Voluntary Withholding Request, and return it to your local Social Security office. To change or end an ongoing voluntary withholding, complete another form W-4V.

Withholding is by your selected percentage of monthly benefits, not a flat dollar amount. When completing the W-4V you select the percentage of benefits for tax withholding. Available options are to have 7 percent, 10 percent, 15 percent or 25 percent of your monthly benefit withheld.

The Social Security Administration has no authority to withhold state or local taxes from your benefit. Voluntary withholding is only for Federal taxes.

Social Security employees cannot provide tax advice. If voluntary withholding interests you, discuss it with your tax preparer or call IRS at 1-800-829-3676 (TTY 1-800-829-4059). To start voluntary tax withholding, complete and provide IRS Form W-4V to your local Social Security office.