Millions of seniors count on Social Security to pay the bills in retirement. But because the program has so many rules, there's a lot of confusion about how it works. Here are some of the most commonly asked Social Security questions you'll hear, and the answers that will set the record straight.
1. How soon can I start collecting benefits?
The short answer here is that you're allowed to file for Social Security beginning at age 62. But the actual answer is a little more complex.
Your Social Security benefits are calculated based on how much you earned during your top 35 working years, and you're entitled to your full monthly benefit upon reaching full retirement age. That age is a function of your year of birth, as follows:
|
Year of Birth |
Full Retirement Age |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 |
67 |
Data source: Social Security Administration.
If you claim benefits before reaching full retirement age, you'll face a reduction that could remain in effect for the rest of your life. The extent of that reduction will depend on how early you file, but if you're looking at a full retirement age of 67 and you claim benefits at 62, you'll take a 30% hit. Therefore, while you're allowed to sign up for benefits at 62, doing so isn't necessarily the best choice.
Image source: Getty Images.
2. Is there a maximum age at which I'll be forced to file for benefits?
At no point in time will the Social Security Administration compel you to start taking benefits. That said, there's really no reason to delay your filing past age 70.
Though taking benefits ahead of full retirement age will result in a reduction, holding off on benefits past full retirement age will result in an automatic boost of 8% per year. However, once you turn 70, you can no longer grow those benefits, and so you might as well file at that point.
Now if you forget to file upon turning 70, you can apply for retroactive benefits, but the Social Security Administration will only give you six months' worth. So if you're planning to delay your benefits past full retirement age, be sure to mark your calendar so you don't neglect to file in time to get all of the money you're entitled to.
3. Will my benefits stay the same for life?
Unless you undo your application for benefits, the monthly amount you start off collecting will be the same sum you get each month for life. But while that base amount will stay the same, you might see a boost in the form of annual cost-of-living adjustments, or COLAs.
COLAs were introduced in 1975, and their purpose is to help Social Security recipients retain their buying power in the face of inflation. Those COLAs, however, are not guaranteed, and during the past decade, there were three separate years in which beneficiaries saw no COLA whatsoever. Even when COLAs are granted, they're often swallowed by Medicare premium increases, so while you might see your share of them over time, don't expect them to amount to much.
4. Will I pay taxes on my benefits?
If you're a relatively low earner, you might avoid taxes on your Social Security benefits. But once your annual income exceeds a certain threshold, you might face taxes on a portion of them.
To see if your benefits will be taxed, you'll need to calculate your provisional income, which is your gross income plus 50% of your Social Security benefits. You can then use the following table to see how you'll fare tax-wise:
|
If Your Tax Filing Status Is: |
And Your Provisional Income Is: |
This Percentage of Your Social Security Benefits Can Be Taxed: |
|---|---|---|
|
Single or head of household |
Less than $25,000 |
0% |
|
$25,000-$34,000 |
Up to 50% | |
|
More than $34,000 |
Up to 85% | |
|
Married filing jointly |
Less than $32,000 |
0% |
|
$32,000-$44,000 |
Up to 50% | |
|
More than $44,000 |
Up to 85% |
Data source: IRS.
Additionally, there are 13 states that tax Social Security to varying degrees:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
If you live in one of these states, you might lose a portion of your benefits to taxes, though many offer exemptions you'll qualify for if your income isn't particularly high.
The ins and outs of Social Security can be confusing, so the best way to make the most of your benefits is to keep reading up on the topic. With any luck, you'll gain the knowledge you need to file at the right time and enjoy your benefits during retirement.
