The Social Security Administration (SSA) is always making changes to their requirements and how much they will pay. The changes are often annual, and if you are thinking about preparing for retirement and waiting to draw on Social Security for retirement income, you need to pay attention to those changes.
A couple of years ago, retirees receiving a social security check had to wait until they were 70 before being allowed to make much additional income without reducing their benefits. The limited amount you could make before that age was quite low and it often meant you would have difficulty living on it. This made the decision to retire after reaching full retirement age (FRA), but before turning 70, more difficult. Those who retired early had their social security payments reduced permanently – which is still the case.
Looking into the recent changes made by the SSA may surprise you. There is now no longer a gap between the time that FRA is reached and when you can earn a sizable second income on top of it. The SSA has declared that once you reach FRA that you can earn – in 2020 – as much as $48,600 per year, or $4,050 per month without it affecting your social security benefits.
If you make more than this amount, the size of your social security payments could be affected. For every two dollars made above this amount, your social security payments will be reduced by one dollar. This may result in withholding your social security checks for some time rather than just taking it out of one or two checks.
If you can wait, waiting to get your social security income until you are 70 has a strong advantage. If you are currently making good money each year now and do not mind continuing to work, your social security check will be considerably more – as much as 32 percent more – if you will reach your FRA at 66.
A cost-of-living adjustment (COLA) has been made by the SSA for 2020. There will be a 1.6 percent increase for recipients of social security and SSI benefits.
Your social security checks may be taxable when you reach your full retirement age. It will depend on how much you make in the way of additional income. If you are a single individual that has a total income of $25,000 up to $34,000, your taxable amount will be at 50 percent of your benefits. If you make more than $34,000, up to 85 percent of your social security income may be taxable. Married couples, who file a joint return with a combined income of $32,000 to $44,000, may need to pay taxes on 50 percent of their social security benefits. If they make more than $44,000, they can expect to pay taxes on 85 percent of their social security income.
Social security benefits have a limited full-benefit period and the SSA expects the payments to be reduced by 2035. At that time, the current predictions are that the SSA’s funds will be reduced enough that it will only be able to pay 80 percent of the full amount.
If you are thinking about retiring and drawing social security benefits soon, you want to be sure to understand how much you will be getting (estimated) from social security and other income before retirement. Saving as much money as you can will pay off – especially when you start early and let interest build your nest egg. When possible, you may want to wait until your income will be higher at age 70 before retiring for the most benefits.