You should fully understand the Social Security parameters when you are looking ahead toward your retirement years, because you will have decisions to make. We were going to provide some important details in this post, but first, we will take a quick look at the way that you qualify.
When you work and pay those annoying FICA or self-employment taxes, you get something back for your contributions eventually. You earn retirement credits when you pay these taxes, and in 2020, you get one credit for every $1410 that you earn.
The maximum accrual is four credits per year, so if you make at least $5640, you will get the max four credits. In previous years, the figure was similarly low, but there are always adjustments to account for inflation.
What you have at least 40 credits, you will qualify for Social Security and Medicare when you reach the eligibility age.
Your benefit amount is based on your earnings during the 35 years during which you paid taxes on the most amount of income. You can register your account on the Social Security Administration website to find out what you can expect in light of your work history, and it is updated on an ongoing basis.
Full Benefit Eligibility Age
Under currently existing laws, all eligible Americans can enroll in the Medicare program when they reach the age of 65. This is simple and straightforward, but the eligibility age for the full Social Security benefit is rather convoluted.
People that were born between 1943 in 1954 become eligible when they are 66, but it gets complicated after that. If you were born in 1955, you would become eligible two months after your 66th birthday.
The two-month per year arrangement continues, so someone born in 1956 is eligible when they are 66 years and four months old.
This two-month per year graduation stops in 1960. Everyone that was born in 1960 or any later year can receive the full benefit when they are 67 years of age.
You can choose to take an early retirement benefit when you are as young as 62, but it would be significantly reduced. The exact amount of the reduction would depend on the your birth year, and it would be somewhere between 25% and 30%.
Aside from the lower benefit, there is another disincentive that makes most people turn away from the early retirement option. If you are still working, you are penalized if you accept the early benefit if you make more than a certain amount of money. In 2020, the cutoff is $18,240.
The Social Security Administration would reduce your benefit by one dollar for every two dollars that you make over this amount.
Delayed Retirement Credits
You do not necessarily have to start receiving Social Security when you reach the full benefit eligibility age. If you do not apply, you would accumulate delayed retirement credits that would increase your benefit by 8% for every year that you delay.
The delayed retirement credits accumulate until you reach the age of 70, so there is no reason to delay beyond that point.
Attend a Free Seminar!
You reached this site because you are looking for information about estate planning and elder law, and we have a lot of it to explore. In addition to the written materials, we also offer free seminars on an ongoing basis to educate our neighbors about the importance of proper planning.
We have some dates coming up in the near future, and you can learn a lot if you attend the session that fits into your schedule. You can visit our seminar page to obtain details and registration information.
- Estate Planning: Do You Need More Than a Will? - May 24, 2022
- What Are the Responsibilities of the Probate Court? - May 10, 2022
- Is Charitable Giving Part of Your Estate Plan? - April 26, 2022