There’s a lot of talk about social security these days. For many of us, social security payments are a big part of retirement planning. Here are answers to a few basic questions on social security.
Q. When can I start drawing benefits?
A. You can start to draw your standard benefit when you reach your full retirement age. That’s at age 65 if you were born before 1938. Full retirement age increases progressively to age 67 if you were born in later years. But you can choose to receive a reduced benefit any time after you reach age 62. The earlier you start, the bigger the reduction. Or you can increase the size of your monthly payment by delaying drawing benefits beyond your retirement age.
Q. Will my benefits be taxed?
A. Whether you’ll have to pay income tax on the social security benefits you receive depends on your other income. If your “provisional income” exceeds certain thresholds, up to 50% of your social security benefits could be subject to tax. This can go up to 85% at higher income levels. Generally, provisional income is your total income from all sources, including tax-exempt interest, plus one-half of your social security benefits.
Q. What happens if I keep working while receiving social security?
A. If you’ve reached full retirement age, you can keep working without reducing your benefits. But if you’re drawing benefits in the years before full retirement age and still working, your benefits could be reduced. Generally, you’ll lose $1 in benefits for every $2 you earn above a certain amount ($15,480 in 2014). Different rules apply in the year you actually reach your retirement age. In a few cases, continuing to work while you’re drawing benefits can actually increase your later benefits.
Q. How do I decide when to begin drawing benefits?
A. Deciding when to start drawing benefits and when to stop working is a very personal decision, but it’s critical for your retirement planning. We can supply the numbers and explain the tax issues to help you make the right choices.