When to begin Social Security benefits can be a complicated subject. As a result, many people do not have a full understanding of their potential choices. Here are some facts about Social Security that are important to keep in mind:
Social Security Can Be a Critical Source of Retirement Income
For some who have planned and saved well, Social Security may be of secondary importance in retirement. Yet, Social Security replaces roughly 40% of an average wage earner’s income after retiring. In addition, Social Security makes annual cost of living adjustments based on the Consumer Price Index and, and under current laws, pays income for life and the life of your spouse.
You Have a Choice for When to Begin
You have considerable flexibility for when you can begin receiving your benefits. The age at which your full retirement benefits are payable, currently between ages 66 and 67, depends upon the year you were born. While you can elect to receive benefits as early as age 62, the amount you receive is reduced. Deferring the start of benefits to age 70 increases your benefit. Keep in mind, adjustments for starting before or after your full retirement age are permanent.
Social Security May Be Taxable
Your Social Security benefit may be subject to taxation depending on your income level. The chart below illustrates how your combined income (adjusted gross income + nontaxable interest + one-half of your Social Security benefit) can impact whether your Social Security benefit is subject to taxation. Figures apply to IRS limits set for 2022.
Will Your Social Security Benefit Be Subject to Federal Income Taxes?
| 50% of Benefit | 85% of Benefit |
Individual Filers | Combined Income of | Combined Income |
Joint Filers | Combined Income of | Combined Income |
This potential income tax exposure may have substantial implications for whether you choose to work in retirement, how your assets are invested, and the timing of withdrawals from retirement accounts. For instance, a withdrawal from a traditional IRA may lift your income beyond the thresholds described above, subjecting a higher proportion of your Social Security benefit to income tax.
Social Security Can Be a Family Benefit
Family members may also be eligible for payments when you start receiving Social Security benefits. A spouse, even if he or she did not have earned income, qualifies for benefits if he or she is age 62 or older, or at any age if caring for your child. The child must be younger than 16 or disabled. Benefits may also be paid to your unmarried children if they meet certain qualifications.
Each family member may be eligible for a monthly benefit that is up to one-half of your benefit amount. There is a family limit that varies and it is generally in the range of 150% to 180% of your benefit.
Your family may be eligible for benefits based on your work record should you die. Family members may qualify, such as a widow, widower or unmarried children of a certain age. Your survivors receive a percentage of your basic Social Security benefit—usually in the range of 75% to 100% for each member, though the family limit paid is once again approximately 150% to 180% of your benefit.
Retirement is a complex subject with many ‘moving parts,’ but there are qualified people who can guide you along the journey.