Factors that Could Have a Significant Impact on Your Social Security Benefits Retirement planning should also involve an in-depth consideration of factors that could affect your social security retirement and disability benefits.
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Benefits offered by Social Security, whether disability or retirement benefits, are a major source of retirement income for millions of Americans. Disability benefits that are granted after a comprehensive medical records review automatically convert to retirement benefits when a disabled person retires, and the amount remains the same. A quarter of the federal budget, i.e. $955 billion is being diverted to Social Security each year. This amount is generated from a 12.4% payroll tax on earned income, whereas interest income on social security programs’ $2.85 trillion in asset reserves and the taxation of benefits constitute the remaining amount. In 2017, an estimated 71% of the $955 billion being paid out will be distributed among retired workers. As of June 2017, the disabled comprised 10.5 million and survivors made up another 6 million. In 2017, the disabled will receive 16% of the $955 billion and survivors will get the remaining 13%. As of July 2017, the average monthly retirement benefit for SS recipients was $1,325. This is indeed a small amount if you have to pay off a mortgage, or have medical expenses to handle. The amount you receive as benefits is determined by certain factors, and you need to understand what those are. ➢ Drawing SS benefits early while continuing to work: This involves paying some of the benefits back to Social Security, and may have a temporary negative impact. •
In 2017, working seniors who claim early Social Security can earn $16,920 per year, with no reduction of their benefits. $1 in benefits will be withheld for each $2 earned over that amount.
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The restrictions cease once the person reaches full retirement age. Then the threshold is $44,880 and $1 in benefits is withheld for every $3 you earn over that amount.
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You get those benefits back once you reach full retirement age. However, it is advisable to monitor your earnings in the meantime.
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Apart from this temporary reduction in benefits, earning too much while claiming social security could result in a portion of your benefits becoming taxable.
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Depending on your income and filing status, up to 85% of your benefits could be subject to federal income tax.
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You can make up for potential tax cuts by contributing to a traditional individual retirement account, financial experts say. Once a person reaches age 70.5, he/she is subject to required minimum distributions (the money you must withdraw from your 401(k) and IRA retirement accounts). While contributing to a traditional individual retirement account (ROTH IRA) while working and receiving social security benefits may not offer tax benefits in the short term, but you can withdraw that money tax-free when you stop working. Roth IRA does not require taking distributions either. ➢ Timing is an important consideration: Seniors often have doubts regarding the right time to start drawing social security benefits. You have the options of: •
Taking benefits as early as 62 years. In this case, the financial costs may be high especially if you are healthy and are likely to have longevity.
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Waiting until full retirement age, i.e. 66 or 67, if you were born after 1943
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Waiting until you reach age 70. In this case, for each year you delay benefits beyond full retirement age, your benefit amount increases by 8% until you reach your 70th birthday.
Financial experts say that if you claim Social Security at 62 years, your monthly benefits could be permanently reduced by 25% or even more. If you are eligible for an amount of $1000 at full retirement age, you will receive only $750 for claiming benefits early. Over a period of 20 years, that would create an annual loss of $3,000 or $60,000 less in total benefits. In case the COLA (Cost of Living Adjustments) increase by 2% annually over that period, the cost of claiming early could be as much as $73,000. Timing is an important consideration for married couples who plan to coordinate their benefits together. Ideally, the spouse receiving the smaller benefit could take social security at the age of 62, and the one receiving the higher benefit could delay until age 70. Apart from timing, health is also an important consideration. If the higher wage earner chooses to take benefits early, the surviving spouse’s benefit would also be reduced. ➢ Consider Medicare premiums: Eligibility for Medicare begins at age 65. For a person taking Social Security, the premiums are automatically deducted from his/her benefits. So Medicare premiums should also be an important consideration. For Medicare Part B, the standard premium is $134 per month in 2017. Depending on one’s income, this could be as high as $267. A Roth IRA or a permanent life
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insurance policy can help keep premiums lower. Another way to keep premiums low is by using qualified charitable deductions (charitable donation on your behalf using funds from a required minimum distribution). As providers of medical review services for social security disability attorneys, we understand the significance of staying abreast with social security norms and updates so that the benefits can be maximized. The right strategies can help people retire confidently with the peace of mind that comes from knowing they are financially secure.
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(800) 670 2809