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5 Social Security Rules Every Retiree Should Know

By Todd Campbell - Apr 15, 2016 at 8:41AM

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Who qualifies for Social Security, how big your Social Security checks can be, and other must-know Social Security rules.


The Social Security program already helps 59 million American retirees, and because 10,000 baby boomers turn 65 every day, the number of people receiving Social Security checks is expected to surge to 75 million in 2031. This graying of America means that Social Security will remain a critical source of retirement income for millions of additional Americans every year. Are you going to be one of them? If so, read on to learn five Social Security rules that everyone ought to know.

1. How to qualify
Social Security is a pay-as-you-go system and that means that current retired worker Social Security checks are funded by people who are currently working and paying their payroll taxes.

To qualify for Social Security in retirement, an individual needs to accumulate 40 retirement credits, which is the equivalent of working and paying payroll taxes for 10 years. However, those years don't have to be worked consecutively in order to qualify for Social Security, so if you were out of the workforce for a while, you may still qualify for payments.

2. Early or late?
Retired workers can begin receiving Social Security income at anytime between age 62 and age 70, but the age at which a person can receive 100% of their monthly Social Security benefit, or full retirement age, varies between age 66 and 67, depending on the year of your birth. The full retirement age for everyone born after 1960, for example, is age 67.

If you decide to receive Social Security before reaching your full retirement age, you'll receive less than you would at full retirement age. If you wait until after full retirement age to begin receiving Social Security, then you'll receive delayed retirement credits that allow you to get more money than you would at full retirement age.

For example, a person born in 1960 who decides to take Social Security at age 62 will receive 30% less than their full retirement age. However, if they wait until age 70, they'll receive 124% of their full retirement age benefit.

3. Work and play
Social Security replaces roughly 40% of the average retiree's pre-retirement income, and that means that many Social Security recipients will need to continue working at least part-time in retirement to make ends meet.

If you're receiving Social Security and you've already reached your full retirement age, you can earn as much as you like without it reducing the amount you receive in Social Security income.

However, if you're receiving Social Security and you're younger than your full retirement age, you'll be subject to an income limit.

In 2016, Social Security recipients who are younger than their full retirement age can earn up to $15,720 per year without it reducing their Social Security income. However, recipients who make more than that will have their Social Security income reduced by $1 for every $2 earned.

Any money that does get held back, however, isn't lost forever. It's simply deferred. Once you reach your full retirement age, those withheld dollars will be used to increase the size of your Social Security check.

4. Maxing it out
Despite Social Security income being determined based on your 35 highest-earning years, the most that a person can receive from Social Security per month is $3,576 this year.

That maximum payment figure would be paid to a recipient who qualified for the maximum benefit at their full retirement age and then waited until age 70 to begin collecting Social Security to benefit from delayed-retirement credits.

5. Paying Uncle Sam
The IRS will tax up to 85% of Social Security income and income tax levels are low enough that many Americans will pay taxes on at least some of their Social Security income.

For example, a single person with a combined income (adjusted gross income + nontaxable interest + one-half of your Social Security benefit) of between $25,000 and $34,000 would pay taxes on up to half of their Social Security income. If that person were to earn more than $34,000 in combined income, they'd get taxed on 85% of their benefit.

Recipients who are married and have a combined income of between $32,000 and $44,000 could pay taxes on up to half their benefit. And couples with combined income north of $44,000 could be taxed on up to 85% of their Social Security check. 

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