YOUR MONEY
By Bill DeMarco
As we approach retirement, one of the first things we think about is getting our Social Security. Here are answers to a few questions I’m commonly asked about Social Security and budgeting for retirement:
Are my Social Security benefits taxed?
A portion of your benefits may be subject to income tax if your Modified Adjusted Gross Income (MAGI), plus one-half of your Social Security benefits, exceeds specific limits. Your MAGI equals:
- Adjusted gross income (or the adjusted gross income of you and your spouse if married and filing jointly), including wages, interest, dividends, taxable pensions and other sources
- Tax-exempt interest income (for example, interest from municipal bonds and qualified U.S. savings bonds)
- Money earned in a foreign country, U.S. possession, or Puerto Rico that is exempt from tax
Up to 50 percent of your Social Security benefits may be subject to income tax if your combined income (MAGI plus one-half your Social Security benefits) exceeds $25,000 for an individual filing single, unmarried head of household, or qualified widow(er) with dependent ($32,000 if married and filing jointly).
If your combined income exceeds $34,000 ($44,000 if married and filing jointly), up to 85 percent of your benefits is taxable. If you are married and filing separately, up to 85 percent of your benefits will be taxed unless you and your spouse live apart for the entire year.
Consult an accountant or other tax professional for more information or view IRS Publication 554, Tax Guide for Seniors.
Should I retire now at age 62 and collect Social Security benefits?
There’s no right time to begin collecting Social Security benefits, but the age at which you begin receiving benefits will affect how much retirement income you have, so you should weigh the consequences carefully.
Keep in mind that if you collect Social Security before your full retirement age, your benefit will be permanently reduced. Depending on the year you were born, you’ll receive between 25 and 30 percent less per month if you collect benefits at age 62 than if you wait until full retirement age to begin collecting benefits. However, this doesn’t necessarily mean that collecting benefits at age 62 is unwise. In fact, unless you live to an exceptionally old age, you may actually end up with more money if you start collecting Social Security benefits at age 62 than if you wait until full retirement age because you’ll receive more benefit checks.
However, there are also good reasons to wait until full retirement age (or beyond) to start collecting benefits. For example, if you work full-time past age 62, you’ll have the opportunity to increase your eventual retirement benefit, particularly if you are in your peak earnings years, because your benefit will be figured using your 35 highest earning years. Additionally, if you’ll barely scrape by after you retire, you may want to receive as much as possible from Social Security each month. If you can wait past the full retirement age to begin collecting benefits, you will receive delayed retirement credits (up until age 70) that will permanently increase your benefit.
Other things to consider:
When planning for retirement, take into account whether other people will be eligible to receive benefits based on your work record, your eligibility for Medicare, your estimated life expectancy and taxes. The Social Security Administration (SSA) has online benefit estimators available at ssa.gov that can help you make an informed decision, and you can sign up at the SSA website for a My Social Security account to view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits.
If you’re not registered for an online account and are not yet receiving benefits, you’ll receive a statement in the mail every year, starting at age 60. You can also talk to an SSA representative by calling 800-772-1213 if you have questions.
Learn more about Social Security at our Social Security & You blog on northeastohiothrive.com by Brandon P. Smith, Social Security Public Affairs Specialist for the Cleveland office.
Bill DeMarco is an investment advisor representative with A&M Financial Group in Westlake. You can reach him at 440-249-0397, ext. 106 or go to amfinancialgroup.com. Advisory Services offered through AMFG Wealth Management LLC, a Registered Investment Advisor.
