Social Security Retirement Benefits

Deciding when to take Social Security benefits is an important life decision. And one you can’t change your mind about. Plus, the initial benefit will be your “base” amount the rest of your life. Only increases in cost of living can cause an adjustment to the amount.

The key to making the decision a little easier is to think about two events as separate—when you want to retire and when you want to begin receiving Social Security benefits. In addition, understanding how benefits are calculated, taxed, and what happens if you continue working after you begin receiving Social Security.

For reduced benefits: retire early

The earliest age you can begin receiving Social Security is age 62. But the benefits paid will be reduced to reflect that you’ll be paid over a longer period of time. This amount varies based on your year of birth. For example if you were born in 1937, the Normal Retirement Age (NRA) for you is 65. If you decided to receive benefits at age 62, your benefit may have been reduced to 80% of what it could have been if you had waited three years. If you were born in 1962, the NRA is age 67. If you decide to receive benefits at age 62, then your benefits will be reduced to 70% of what it would be if you waited four years.

For full benefits: retire at NRA

For a long time, the NRA was set at age 65 to receive the full benefits or 100% of an person’s Primary Insurance Amount (PIA), calculated by the Social Security Administration based on the lifetime earnings record. For those born in 1938 or later, the NRA gradually increases until it reaches age 67 for those born in 1960 or later.

For bigger benefits: retire later

If you can wait, you can get paid a larger retirement benefit. For each year beyond your NRA that you wait until age 70, your benefit increases by a specified percentage of the PIA. The credit amount, for each year you wait, varies depending on what year you were born. For example, if you were born in 1943 or later, delaying your retirement increases your benefit by 8% per year for each year you wait until you turn 70.

Early or Late. Which is better?

You can get a good idea by doing a “break-even” analysis to estimate the age you’ll be when the total value of the higher benefits, when you delay retirement, is higher than the total value of lower benefits, if you were to retire earlier. 
If you expect to live longer than your break even age, you probably could benefit from waiting to receive Social Security. If you are in poor health or if people in your family tend to die at younger ages, you will probably get a better benefit by beginning your benefits earlier.

Social Security Benefit Federal Income Tax

Social Security benefits may be subject to income tax. When half of the Social Security benefit and the modified adjusted gross income exceed a specified limit, then a portion, up to 85%, of that benefit is taxable. For married couples filing joint, the limit is $32,000, for most others it’s $25,000. For those married couples filing separately and who lived with their spouse at any time during the year, the limit is $0. State or local income taxes on Social Security benefits vary.

Excess Earnings Reduced Benefits

If you begin getting Social Security benefits and you continue to work, your benefit will be reduced temporarily if your earnings exceed certain limits. In this case, earnings include employment wages or self-employment net income. The amount reduced varies: 

• Under NRA:  $1 of benefits is lost for every $2 earned over $14,160 yearly or $3,150 monthly.

• The year you reach NRA: $1 of benefits is lost for $3 dollars earned over $37,680 per year or $3,140 a month.

• At NRA: Once NRA is reached, and individuals’ benefit is not reduced no matter how much is earned. Any benefits withheld earlier because of excess earning will be credited to the individual’s account resulting in a larger retirement at NRA.

• Special rule for the first year of retirement: If, just before retiring , you earned more than the annual limit, then you’ll be paid unreduced Social Security benefits for any month after benefits begin that you do not earn more than the monthly exempt wage amount.

Verify Social Security Records

• Because the Social Security benefits are based on your lifetime earnings history, it is important to check your SSA records’ accuracy. The SSA sends annual statements to every worker age 25 and over. This statement includes your earnings record and the estimated benefits amounts.

• You can also check your records by completing Form SSA-7004, Request for Social Security State.” The completed form can be mailed to the Social Security Administration, P.O. Box 7004, Wilkes-Barre, PA 18767-7004.