What Factors Impact Social Security Check?

By: Nick Leydorf
How much money will be in your Social Security retirement check and how much can you keep? For retirees, these are burning questions.

The amount of your Social Security retirement check and how much can you keep are the subjects of Money Talks News’ recent article entitled “9 Factors That Impact the Size of Your Social Security Check.” It examines the deciding factors behind the size of your check and how much goes into your pocket.

  1. Your work history. As far as Social Security, your retirement age isn’t when you quit work but when you start taking Social Security benefits. To calculate the size of your monthly benefit check, the Social Security Administration (SSA) uses a formula that takes into account your 35 highest-earning years and when you start receiving Social Security benefits.
  2. Your earning history. The size of your Social Security checks also depends on the amount you earned in each of those 35 top-earning years. The formula measures earnings, not work. If you don’t have 35 years’ worth of earnings, Social Security assigns a $0 value for each non-earning year. The $0 years lower your benefit amount. However, working more than 35 years can’t hurt this calculation. In fact, you can grow your monthly retirement check if: (i) you add earning years to replace zero-earning years; and (ii) you replace lower-income years with higher-earning years.
  3. When you were born. The year of your birth determines your “full retirement age,” which is a benchmark for your benefits set by the Social Security Administration. For those born between 1943 and 1954, full retirement age is 66. If you were born in 1960 or later, your full retirement age is 67.
  4. Your age when you claim. Social Security allows retirees to claim benefits and receive retirement checks as soon as 62. However, you can’t earn the full amount you are due at that time. You have to wait until your full retirement age. Claiming sooner permanently lowers your monthly benefit amount. If you wait even longer than your full retirement age, you can increase your Social Security benefit, which is also permanent. You increase your monthly benefit for each month you delay claiming until 70. The most your monthly benefit can grow is 8%. You’ll get that by waiting for your 70th birthday before claiming benefits. The increases stop at that age.
  5. A spouse who worked. There’s a “spousal benefit.” If your spouse earned more than you (and is receiving benefits), you might be eligible for a higher payout. It’s up to half of your spouse’s “primary insurance amount,” depending on what age she or he claimed Social Security. Usually, you must be at least 62 to do this. The benefit increases if you delay claiming until your full retirement age.
  6. The state of the economy. Once you’re getting Social Security, your monthly benefit is typically fixed. However, inflation affects those on fixed incomes. As a result, Social Security law tries to compensate with automatic cost-of-living (COLA) adjustments (a boost to the monthly benefit). These are based on the national rate of inflation.
  7. Whether you keep working. This is an exception to the rule of thumb that Social Security payments are fixed after you claim benefits. Working after you start collecting benefits can increase your Social Security payment. Your benefit formula is recalculated once a year to include your new earnings, and if your latest year of earnings is one of your highest years, the SSA recalculates your benefit and pays you any increase due. With each year of higher earnings, Social Security replaces a lower-earning year in the formula. However, if you’re younger than full retirement age, you could end up temporarily lowering your benefit if you earn too much at work. When you reach your full retirement age, the penalty stops, and your benefit amount is adjusted to compensate you for the period benefits were withheld.
  8. Whether you have other income. If your income is under $25,000 for a single filer or under $32,000 for a couple filing jointly, you don’t pay federal income tax on your benefit checks. If not, your benefit is taxed on up to 50% or 85% of the total amount.
  9. Your location. If you live in one of the 12 states that tax Social Security benefits, you may also owe state income tax on your benefit check.

Reference: Money Talks News (Sep. 19, 2022) “9 Factors That Impact the Size of Your Social Security Check”

Suggested Key Terms: Retirement Planning, Financial Planning, Social Security

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