These guidelines govern how much you pay into Social Security and how much you receive in retirement. If you pay strict attention to the Social Security rules, you may be able to increase your Social Security payouts. Your payout is heavily influenced by your career earnings and your age when you join.
Employees conversant with the Social Security laws will be able to maximize their payouts. While making your selection, pay particular attention to these characteristics of the program.
These are ten important Social Security guidelines to remember:
- Most workers contribute a 6.2% payroll tax.
- Social Security doesn’t tax earnings that surpass $160,200 in 2024.
- Your Social Security payout is calculated based on 35 years of wages. A few things to know:
- The average Social Security benefit is $1,827 per month.
- The baseline qualifying age for Social Security is 62.
- The full retirement age for baby boomers is 66.
- The full retirement age will progressively rise to 67 years old.
- To maximize your monthly payments, aim to file at age 70.
- If you claim Social Security before reaching full retirement age, your earnings are limited to $21,240.
- Retirees earning over $25,000 must pay tax on a portion of their Social Security payout.
Payroll Tax of 6.2%
Most employees contribute 6.2% of their wages to the Social Security system, and their employers match this proportion. Self-employed people pay 12.4% of their earnings into Social Security.
Set up a “My Social Security account” to view how much you have paid and ensure your wages have been appropriately recorded. If you notice any inaccuracies on your Social Security statement, you should repair your Social Security earnings record by obtaining the necessary paperwork and notifying the Social Security Administration. The current Social Security tax rate of 6.2% has been in force since 1990.
$160,200 Tax Exemption
In 2024, the tax ceiling for Social Security tax is $160,200. Earnings exceeding the tax ceiling are neither taxed nor utilized to calculate retirement benefits by Social Security. Employees earning more than $160,200 in 2024 will see an increase in their paychecks when Social Security taxes are no longer withheld. It is important to note that all your Social Security income may not be taxed depending on your other income. The standards for this vary every year, so remain up to date, says Dana Ronald, CEO of Tax Crisis Institute.
Every year, the Social Security taxable maximum is modified for inflation. In 2021, the tax ceiling was $142,800; in 1990, it was $51,300; in 1950, it was $3,000.
Earnings Over 35 Years
Your Social Security payouts are based on the 35 years you earned the greatest money. This means they will take your top 35 years of earnings. Zeros are averaged in if you have not worked for at least 35 years, and your retirement payouts will be reduced.
Working more than 35 years may increase your benefits since your lowest-earning years will be excluded from the computation.
Suppose you continue to work in retirement, even after receiving Social Security benefits. In that case, your benefit will be revised to give you credit for another year of earnings, which can replace a year of low or no earnings. However, it’s important to note that the IRS imposes limitations that impact your Social Security and Medicare benefits.
$1,827 is the average payment.
According to a certified financial advisor at Castle Rock Investment Group, Ryan McCarty, advises that the average Social Security payout for retired employees in 2024 is $1,827 per month. Your benefit amount will be determined by your earnings history, the age at which you get benefits, and other variables.
For example, retired couples earn an average of $2,972 every month.
Payments are increased annually to account for inflation, as determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers. Adjustments for the cost of living have ranged from nil in 2010, 2011, and 2016 to 14.3% in 1980.
In 2024, Social Security recipients got an 8.7% cost-of-living adjustment. The maximum Social Security payout available to a worker who reaches full retirement age in 2024 is $3,627.
At the age of 62, you are eligible to receive Social Security.
Employees are eligible to begin receiving Social Security retirement benefits at 62. But, depending on your birth year, monthly benefits are cut by 25% or 30% if you claim them at this age.
For example, a baby boomer eligible for $1,000 per month from Social Security at the age of 66 would receive a reduced payment of $750 per month if he signs up for Social Security at 62. Individuals with a full retirement age of 67 are penalized more severely for beginning Social Security payments early.
Full retirement age
The Baby Boomer Generation’s age at full retirement is 66, and they may collect their Social Security payment without being reduced. Knowing your entire retirement age is critical since collecting Social Security benefits before your full retirement age might result in a lower payment.
The initial retirement age for Social Security was 65. However, a 1983 statute increased the full retirement age based on your birth year.
Individuals born between 1943 and 1954 are eligible for full Social Security payments at 66. The full retirement age is gradually rising from 66 and may eventually climb to age 70, depending on your birth age and potential laws that might be enacted. The current laws, for now, state individuals born in 1960 or after will reach the full retirement age of 67.
To receive their full retirement benefit, millennials and members of Generation X must wait a year longer than baby boomers and two years longer than their grandparents. Individuals born after 1959 also face larger decreases in Social Security benefits if they begin payments before reaching their full retirement age and receive less of a benefit if they claim Social Security after reaching their full retirement age.
Maximize your monthly payments by waiting to age 70
Social Security payments grow for each month you postpone (after your full retirement age), starting them up to the age of 70. At 70, there is usually little advantage to delaying enrollment. By filing for Social Security at 70, retirees can increase their monthly income by 24% to 32%, depending on their birth year.
If you have already begun receiving Social Security benefits, you can temporarily delay them between your full retirement age and 70 to qualify for bigger payouts later in retirement.
Suspending Social Security payments allows you to accumulate delayed retirement credits before restarting Social Security payments at a higher rate later.
Maximum Earnings of $21,240
If you work and receive Social Security before reaching full retirement age, a portion of your benefits may be temporarily withheld if you earn more than $21,240 in 2024.
You may work before your FRA and get Social Security payments simultaneously, explains Kevin Walton, a qualified Social Security analyst. However, there is an income maximum of $21,240 (as of 2024, with a yearly increase). Recipients who earn more than the earnings restriction will have $1 deducted from their benefits for every $2 earned above the limit. Individuals reaching full retirement age in 2024 have a higher earnings cap of $56,520, and the penalty is reduced to $1 withheld for every $3 over the earnings limit.
But, after you reach full retirement age, there is no benefit reduction for working and claiming benefits simultaneously, and your payments will be enhanced to account for previously withheld payments.
Retirement Income of $25,000
Social Security benefits can be taxed.
Social security benefits are taxed, Walton explains. In general, Social Security payments are regarded as income for tax purposes if a taxpayer has additional sources of income. Single filers must have a total income of at least $25,000, and married filers must have a total income of $32,000.
If an individual’s adjusted gross income, nontaxable interest, and half of their Social Security benefits happen to exceed $25,000 ($32,000 for couples), half of their Social Security benefits become taxable. Additionally, if your total income exceeds $34,000 ($44,000 for couples), you may be required to pay income tax on up to 85% of your Social Security benefits.
You can have federal taxes deducted from your Social Security check or make quarterly estimated tax payments to the IRS. Social Security income is not taxed in most states.