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Social Security

Social Security — It’s complicated

How much do you really know about Social Security? Eventually, most people will have to make some decisions regarding their Social Security benefits. Understanding some of the issues that may arise can help you in your retirement planning. Here are some commonly asked questions.

When can I receive benefits?

Your “full retirement age” is the age at which you will be eligible to start receiving full (unreduced) Social Security benefits. It’s based on the year you were born.

If you were born in: Full retirement age is:

1943 – 1954 66

1955 – 1959 between 66 and 67

1960 and later 67

You can start collecting benefits as early as age 62. However, your benefits will be reduced a fraction of a percent for each month before your full retirement age.

Can I delay collecting Social Security benefits?

You can postpone signing up for Social Security until after your full retirement age. If you delay taking benefits, your benefit will increase by a certain percentage, depending on your date of birth, until you reach age 70. If you were born in 1943 or later, your benefits will increase by 8% each year you delay taking benefits until you reach age 70.

For example, if you were born in 1960 and decide to postpone taking benefits, your benefit will increase 8% per year up until age 70. Here’s how it’s calculated:

If you start receiving benefits at age: Multiply your fullretirement benefit by:

67 100%

68 108%

69 116%

70 or later 124%

How are my benefits calculated?

To be eligible to receive Social Security benefits, you need to work and pay Social Security taxes. You can earn up to four “credits” for each year you work. You need at least 40 credits to receive benefits. In 2014, you must earn $1,200 to get one Social Security work credit and $4,800 to get the maximum four credits for the year.

When you retire, your Social Security benefit will be based on the 35 years you earned the most money. Keep in mind, however, that there is a maximum benefit amount. For example, the maximum monthly benefit for a worker retiring in 2014 at full retirement age is $2,642. The average monthly benefit is $1,294.

Will I have to pay taxes on my Social Security benefits?

Depending on your income, a portion of your Social Security benefits may be taxed. Your income includes half of your Social Security benefits plus any wages, self-employment income, dividends and interest (including tax-exempt interest), and any other income you earn. If you file a federal tax return as an individual, you may have to pay income tax on up to:

- 50% of your benefits if your income is between $25,000 and $34,000

- 85% of your benefits if your income is more than $34,000

If you file a joint federal tax return, you may have to pay income tax on up to:

- 50% of your benefits if your income is between $32,000 and $44,000

- 85% of your benefits if your income is more than $44,000

What if I work part-time during retirement?

If you retire early and then decide to go back to work after you start receiving Social Security benefits, earning too much could reduce your benefits. In 2014, if you earn more than $15,480 and are under your full retirement age, your benefits will be reduced $1 for every $2 you earn above that limit. There is a different limit and benefit reduction formula for the year you reach full retirement age, and only amounts earned before the month you reach full retirement age count. Beginning the month you reach your full retirement age, there is no limit on earnings.