Social Security: Common Questions

Many clients ask us questions about Social Security.  We thought it would be useful to answer some of the most common questions we are asked:

Will Social Security be around when I need it? Although no one knows for certain what will happen to the Social Security system, if you are within a few years of retirement, it is highly probable that you will receive your benefits. If retirement is in your distant future, it may be prudent to consider various scenarios when planning for retirement.  While Social Security is an important source of retirement income for most Americans, it may be unwise to rely too heavily on Social Security for planning purposes.  This is because most experts agree that for the system to remain solvent, some changes will have to be made. Therefore, those who are younger and in a more affluent demographic are most likely to be impacted by Social Security cutbacks.

Can I receive a Social Security retirement benefit and still continue to work? Once you have reached full retirement age (currently age 66), you can earn as much as you want without impacting your current Social Security benefit. However, if you have not reached full retirement age, any income that you earn may reduce the current benefit you receive.  Consider the following:

If you have not reached full retirement age, $1 in benefits will be withheld for every $2 you earn above the annual limit. For 2019, that limit is $17,640.

Social Security Questions

Social Security Questions

In the year you reach full retirement age, $1 in benefits will be withheld for every $3 you earn above the annual limit until the month you reach full retirement age. If you reach full retirement age in 2019, that limit is $46,920.

Are my Social Security Benefits Taxable? If the only income you had during the year was Social Security income, then your benefit is generally not taxable. However, if you have earned income during the year or had substantial investment income, then you may have to pay federal income tax on a portion of your benefit. There is a chance that up to 85% of your benefit may be taxable. The actual percentage of your benefit that is taxable depends on your tax filing status (e.g., single, married filing jointly) and the total amount of income you have.

If I delay receiving Social Security Benefits, do I still need to sign up for Medicare? Even if you plan on waiting until full retirement age or later to take your Social Security retirement benefits, make sure you sign up for Medicare. If you are 65 or older and aren't yet receiving Social Security benefits, you won't be automatically enrolled in Medicare Parts A and B. You can sign up for Medicare when you first become eligible during your seven-month Initial Enrollment Period. This period begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65.

How is my Social Security Benefit calculated? Your Social Security retirement benefit is based on the number of years you've been working and the amount you've earned. Your benefit is calculated using a formula that takes into account your 35 highest earnings years. If you earned little or nothing in several of those years, it may be advantageous to work as long as possible. That way, you can replace a year of lower earnings with a higher one, potentially resulting in a higher benefit.If you begin collecting retirement benefits at age 62, each monthly benefit check will be 30% to 32.5% less than it would be at full retirement age. The exact amount of the reduction will depend on the year you were born. Conversely, you can get a higher payout by delaying the benefit start date past your full retirement age.  By delaying Social Security, the payout increases about 8% per year between full retirement age and up to age 70.

No matter what the future holds for Social Security, focus your efforts on saving as much for retirement as you can. When combined with future Social Security benefits, your retirement savings can help ensure that you will have enough income to see you through retirement.