In the United States, Social Security refers to the OASDI program known as the Old Age, Survivors, and Disability Insurance and is operated by the Social Security Administration (SSA), a federal agency in the United States. Besides providing retirement benefits, it also provides survivor benefits and income for disabled workers.
As of September 2022, more than 70.61 million Americans were collecting benefits.
Paying into and receiving Social Security in retirement are determined by certain guidelines that many of its users do not fully understand.
Here are ten things every Retiree who is or plans to receive Social Security should know.
#1 Maximizing Your Social Security Benefits
If you pay strict attention to the Social Security requirements, you may be able to increase your payouts. Social Security benefits are heavily influenced by your age and the amount of money you earn throughout your working life. Employees who take the time to learn the Social Security system is in the best position to maximize their benefits. Keep these things in mind when deciding how to use your Social Security benefits.
#2 The payroll tax rate is 6.2%
The average worker contributes 6.2% of their salary to Social Security, and most companies match that amount. A percentage of self-employed employees’ earnings (12.4 percent in 2016) goes toward funding the Social Security system. Social Security allows you to set up a “my Social Security” account for tracking contributions and verifying your earnings. If you find any mistakes on your Social Security statement, you must notify the Social Security Administration with the necessary paperwork and update your earnings record. The current rate of 6.2% for Social Security taxes was established in 1990.
#3 Limitation of $160,200 in Taxes
As of 2023, earnings above $160,200 are not subject to Social Security tax, and neither the Social Security tax nor retirement benefits are affected by more than the maximum income. Workers with incomes over $160,200 will see an increase in their take-home pay due to the elimination of Social Security deductions. Inflation increases the maximum income subject to Social Security taxes every year. In 2022 it was 147.00; in 2021, it was $142,800; in 1990, it was $51,300; and in the 1950s and before, it was only $3,000.
#4 Income from 35 Years of Work
The 35 highest-earning years of your life are averaged to determine your monthly Social Security benefit. Your retirement benefits will be reduced if you don’t work for at least 35 years. If you’ve been employed for over 35 years, your payments may increase since your lowest-earning years may be disregarded. By working after you’ve started receiving Social Security benefits, you can make up for a low- or no-income year and increase the amount of your benefit.
#5 Typical Monthly Cost: $1,827.
In 2023, the average monthly Social Security payout for retirees will be $1,827. Benefit payments are adjusted based on the CPI-W. There were no cost-of-living increases in 2010, 2011, or 2016, and a high of 14.3 percent in 1980. In 2023, the cost of living increase was 8.7%. In 2022, the cost of living increase for those receiving Social Security was 5.9%. The maximum Social Security benefit in 2023 will be $3,627 per month.
#6 eligible at age 62
At age 62, workers can begin collecting their first Social Security retirement income. If you apply for benefits at this age, however, your monthly payment will be cut by 25% or 30%, depending on the year you were born. If a baby boomer chooses to enroll in Social Security early, at age 62, he will get a monthly payout of $750 instead of the $1,000 he would receive if he waited until age 66 to enroll. Starting Social Security payments before the full retirement age of 67 results in a larger loss in benefits.
Now, retirees from the baby boomer generation must be 66 years old.
You must wait until you reach full retirement age to get your entire Social Security income. When Social Security was first established, the retirement age was 65. However, beginning in 1983, the retirement age was raised to account for individuals’ birth years. To get full Social Security retirement benefits at age 66, you must have been born between 1943 and 1954. People born in 1955 are eligible for full retirement at 66 years and two months, and for those born in 1959, it is 66 years and ten months.
#7 The official age of retirement has been raised to 67.
Social Security recipients born in 1960 or after are entitled to full retirement at 67. To get their full retirement benefit, Generation Y and X individuals must wait an additional year beyond what was required of baby boomers and their grandparents. Those born after 1959 also see larger losses in Social Security income if they begin receiving payments before their full retirement age and smaller benefits if they wait to claim Social Security past their full retirement age.
You can find out what your file retirement age is by visiting the Social Security Administration website -SSA.gov.
#8 No additional benefit increase after you reach age 70
You will receive a higher monthly benefit if you wait until you are 70 to begin receiving Social Security. There’s usually no use in waiting to sign up after age 70. At age 70, retirees may increase their monthly income by between 24 and 32 percent, depending on their birth year. If you’ve already begun receiving Social Security benefits, you can delay receiving them until you are 70 years old to increase the amount you’ll get. Putting off starting Social Security benefits gives you a chance to build up so-called “delayed retirement credits,” which can be used to boost your benefit amount when you eventually start receiving payments again.
#9 The salary cap of $19,560
Part of your Social Security benefits might be temporarily withheld in 2023 if you earn more than $21,240 while working and collecting Social Security. If a beneficiary’s income exceeds the threshold, their payments will be reduced by $1 for every $2 excess income. The earnings cap increases to $56,520 in 2023 for those who will be of full retirement age that year, and the penalty drops to $1 withheld for every $3 earned in excess of the cap. You will not be penalized for continuing to work while collecting benefits, and your payments will increase as soon as you reach full retirement age.
#10 You May Be taxed on Your Social Security
Sometimes, the money you receive from Social Security might be subject to income tax. A person with an adjusted gross income over $25,000 plus nontaxable interest and half their Social Security payment faces this tax ($32,000 for couples) and will most likely be subjected to income taxes. Furthermore, 85% of your Social Security benefits may be subject to income tax if your combined annual income is more than $34,000 ($44,000 for couples). You can either have the federal government deduct taxes from your Social Security check or pay anticipated taxes to the IRS every three months. While your Social Security check will likely be tax-free in most states, there are a few exceptions.
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