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August 9, 2023

The Quick and Dirty on Social Security

by Shalmali Kulkarni

Social Security Basics

Social Security is a complex program that was first introduced by the government in 1935 for the benefit of the retired, the dependent, and the disabled. Since then, it has provided millions of Americans with a monthly payment to help meet their daily expenses. But there are several complex rules associated with Social Security and although all may not apply to everyone, it is always beneficial to know the basics.

social security basics

Social Security Eligibility

To be eligible to receive Social Security (SS), you must be a U.S. citizen/green card holder and must have 40 credits (equivalent of 10 years of employment) of income on which you have paid Social Security tax. You can also receive Social Security if you are married to someone for 10 years and your spouse has 40 credits of income. If you are a foreign national, you can collect SS, as long as your spouse is a U.S. citizen/green card holder. Lastly, you are also eligible to receive Social Security on your ex-spouse’s income, as long as you were married for at least 10 years and are not re-married at the time of starting benefits.

If you do not have at least 40 credits, you are not eligible to receive Social Security. You may, however, be eligible for spousal benefits, as long as your spouse has completed 40 credits of employment.

Earliest Age to Claim Social Security

The earliest you can claim Social Security is age 62 and the latest you can delay is age 70. If you start benefits at any age before your full retirement age, you will face a permanent reduction in your benefit. This can be as high as a 25% reduction in benefits for starting at age 62. By delaying Social Security until age 70, you receive a permanent increase in your benefit by 8% each year from your full retirement age until age 70. There is no benefit for starting Social Security beyond age 70.

Your full retirement age (FRA) is the first year when you can start receiving your full unreduced benefits. Your FRA depends upon your year of birth.

Year of Birth FRA
Before 1954 66
1955 – 1959 Between 66 – 67
After 1960 67

 

Calculation of Benefits

The amount of Social Security benefit you are entitled to depends on your highest 35 years of earnings. If you worked for less than 35 years, the Social Security Administration (SSA) assigns a $0 value to that year. If you worked for more than 35 years, it will only account for your highest 35 years. To get an estimate of the benefit you can receive, you can review your Social Security statement available at www.ssa.gov.

Now that we have covered the basics, let’s tackle some nuances.

 

Social Security Nuances

 

Can You Collect SS and Earn Income at The Same Time?

You are eligible to collect SS while you are working. However, if you are below your FRA, and your income is above a certain limit, your benefits will be reduced. This reduction is only temporary and lasts until you reach FRA. Once you are at FRA, there is no further reduction in benefits due to earned income. At FRA, the SSA will recalculate your benefit, adding any credits that were previously withheld due to your earnings and give you the increased benefit going forward.

If you have already applied for benefits and would like to withdraw your filing due to starting a new job, you are able to do so. However, the SSA restricts such a withdrawal to within 12 months of filing and only once in a lifetime. If you fall within the above category and are able to file for withdrawal, remember, you have to pay back the SSA all of the benefits received from them so far.

Spousal Benefits

Your individual eligibility for SS does not depend on your marital status. As long as you have completed 40 credits, you are eligible for your own SS benefits. However, if you did not work during your lifetime, you are still eligible to collect benefits at your FRA which will be equal to 50% of your spouse’s benefit at his/her FRA. Please note, the earliest you can start collecting spousal SS is age 62; however, in this case, the 50% benefit will be permanently reduced by 31%. There is no reward for delaying spousal benefits and hence no point waiting beyond your FRA to collect. If you have sufficient credits during your lifetime, you are entitled to receive your own benefits at FRA or 50% of your spousal benefit, whichever is higher.

An important thing to remember is, you cannot file for spousal benefit until your spouse has filed for their own individual benefit.

Survival Benefits

The SSA also provides survival benefits to you after your spouse’s passing. However, unlike the spousal benefit, which does not change regardless of when the eligible spouse collects his/her benefits, the survival benefit is directly tied to the eligible spouse’s age at the starting of the benefit period.

As a surviving spouse, you are eligible to receive the higher of your own or 100% of your deceased spouse’s benefit at passing. Thus, if your spouse started collecting benefits at age 62, and then passed away, you would be eligible for 100% of the permanently reduced benefit, if higher than your own benefit.

The earliest you can start collecting survivor benefits is age 60.

Divorced Benefits

If you were married to your ex-spouse for at least 10 years, have been divorced for at least 2 years, are not remarried, and are at least age 62, you may be eligible for spousal benefit.

If your ex-spouse has passed away and you are unmarried (or were unmarried as of age 60), you may be eligible for survivor benefits.

Are SS Benefits Taxable?

One big question that everyone has is, are SS benefits taxable? The short answer is, they can be. Depending on your income, either 0%, 50% or 85% of your benefits may be taxable.

 

So that’s the quick and dirty on Social Security.

We hope you found this information on Social Security basics useful, but keep in mind it’s only an overview. There are many rules and regulations for Social Security, and eligibility and benefits can change regularly. If you have any questions related to your own unique situation and Social Security benefits, feel free to contact Rowling & Associates and we will be happy to assist you.

 

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