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LawTalk
LawTalk, Attorney
Category: Social Security
Satisfied Customers: 27889
Experience:  I have 30 years of legal and litigation experience, including representing clients before the U.S. Social Security Administration.
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Im 66 and was told by the SS office that I sould start collecting

Customer Question

I'm 66 and was told by the SS office that I sould start collecting my SS benefits now. However I'm currently working in a job from which my annual salary will be among the highest I have earned in my lifetime. Is this salary used to calculate my SS benefit and if so should I wait to start receiving my SS benefits until the end of the year?
Submitted: 1 year ago.
Category: Social Security
Expert:  LawTalk replied 1 year ago.

Good morning Richard,

I'm Doug, and I'm sorry to hear of the confusion. My goal is to provide you with excellent service today.

I'm surprised that anyone from social security would suggest what they did. Unless you absolutely need the money from social security, then you would be foolish to take your benefit now---let me explain.

First, while it is true that you may take your benefit now, and earn as much income as you want and it will not negatively affect your benefit level, if you wait just 12 months---and even if you did not work----your benefit would increase by 8% over what you would get if you took the benefit now.

Additionally, yes, the money that you earn this year will be added to your lifetime earnings if it is in the top 35 years of your earnings history, and that will mean that your benefit will increase that much more for next year. So, if you have a really great year income-wise this year, and you get that additional 8% by postponing your retirement benefit by 12 months, you may see an increase in your social security retirement benefit of perhaps 10% over what you would get today. That is a great deal.

The 8% per year is actually calculated monthly---it is 2/3 of 1% increase for every month you delay up to age 70. So if you continue to work and make good money until age 70, and you delay taking your benefit until then, you could see an increase of as much as 35% or more over what you could get today. Or, you can choose at any time to take your benefit, and still get that 2/3 of 1% increase for every month delayed.

In terms of dollars, if your benefit now would be $2,200 a month, by waiting until age 70, it would increase to about $2,970 per month.

So, as a general rule, if you do not need you social security benefit at age 66, then is usually a better choice to postpone the benefit and take advantage of the 8% increase a year. Nowhere else in this economy do you get 8% of something that will pay you that 8% for the remainder of your life.

You may reply back to me using the Continue the Conversation or Reply to Expert link and I will be happy to continue to assist you until I am able to address your concerns, to your satisfaction.

Please remember to rate my service to you when our communication is completed.

I wish you the best in 2013,

Doug

Customer: replied 1 year ago.


The reason that the individual suggested that I start receiving my benefits is that at 82 is when I would be "even" and unless I knew that I would live to 82 she suggested that I start receiving my benefits. Also my job will be finisked at the end of the year and I do plan on retiring so does the increase calculated from this years income represent an enough of an increase in my SS benefit to justify waiting until the end of the year to apply to receive my SS benefit.

Expert:  LawTalk replied 1 year ago.

Good morning Richard,

Actually, your break even point is much closer to 10 years---not 16. If your benefit increases by 8%, along with an additional 1% or 2% for your banner year of income, beginning at age 67, your benefit will be about 10% higher---meaning that at that rate, you would break even in 10 years, not 16.

With so many people living longer these days, dying before 77, or even 82, is not a given, and yet the difference in benefit could be $200 or more per month.

If you make a lot of money this year, and collect social security you will also have to pay more income tax on your social security earnings.

You can do the following quick computation to determine whether some of your benefits may be taxable:
A. First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
B. Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

If you are married filing jointly, your base amount is $32,000.
If you are single, your base amount is $25,000.

If you file a federal tax return as an "individual"
and your combined income* is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits. If it is more than $34,000, up to 85 percent of your benefits may be taxable.

If you file a joint return
, and you and your spouse have a combined income* that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits. If it is more than $44,000, up to 85 percent of your benefits may be taxable.

Your adjusted gross income + Nontaxable interest + ½ of your Social Security benefits = Your "combined income".

I hope that you found my answer informative, that you are accepting of my efforts and that you will rate my efforts based on the knowledge I have provided to you.


You may reply back to me again, using the Reply to Expert link, if you have additional questions.

I wish you the best in your future,

Doug

Customer: replied 1 year ago.


If I am understanding your answer I receive only a 1 - 2 % more if I wait until the end of the year to start receiving my SS benefits. Even though it is about 20% highed income that any previous year.

Expert:  LawTalk replied 1 year ago.
Hi Richard,

The additional income you earn this year will not by itself have a huge effect on your benefits by itself. That is because social security bases your benefits on 35 years of income. One year---even a banner year of income, at beat can increase your benefit by about 2%.

It is the delay in taking the retirement benefit that gives you the 8% per year, and makes it worthwhile to delay taking your benefit.

You may reply back to me using the Continue the Conversation or Reply to Expert link and I will be happy to continue to assist you until I am able to address your concerns, to your satisfaction.

Please remember to rate my service to you when our communication is completed.

I wish you the best in 2013,

Doug
Expert:  LawTalk replied 1 year ago.
Good afternoon Richard,

In follow up, I want to explain how it can be that you are earning so much more this year and yet it will have such a minimal effect on your benefits.

The determination of how much a person’s social security retirement benefit will be involves some complex calculations, and contrary to what might be expected, the benefit is not evenly awarded based on your lifetime income, but instead is heavily weighted on the first $322,140 that you earn in your life.

Your social security retirement benefit is based on an average of your earnings over the highest 35 years of your lifetime. If you earn income in less than 35 years, that income is still divided based on the 35 year factor.

To complicate things even more, social security then applies a multiplying factor to each year of income to try and make it relevant to today’s dollar value. In other words, earning $10,000 in 1960 is the equivalent of earning $107,300 in 2013. Here is a table that you can actually use to determine the adjusted average monthly income that social security will use to determine your benefit amount: http://www.socialsecurity.gov/pubs/EN-05-10070.pdf

Once all of your adjusted monthly income (top 35 years at most) is determined and then added up, social security will divide that amount by 35 (years), and then again by 12 (months), to get an average monthly income for you. It is from that average monthly income that your benefit is determined.

Based on your average monthly income, social security will pay as your retirement benefit at full retirement age 90% of the first $767, 32% of the remainder up to $4,624 a month. Then finally, if your monthly income average is greater than $4,624, they will add 15% of all amounts over that.

As is plainly clear, while social security will pay 90% of the first $767 of your average monthly income as a benefit to you, that percentage drops drastically to only 32% after the first $767 of average income.

What this means to the typical employee who has already worked close to, or more than, 35 years, is that working another final year before taking their retirement benefit will generally, at most, increase their total retirement benefit by only about 1% to 2%.

Please keep in mind that until you rate me highly for my service, I will not be credited with helping you.

Thanks again.

Have a great day,

Doug

Expert:  LawTalk replied 1 year ago.
Good evening Richard,

I wanted to thank you for using JustAnswer, and to inquire whether my answer to you was helpful to your understanding of the law, as regards your question.

Is there anything else that I can assist you with, please feel free to ask. If you do not require further legal information at this time, please feel free to bookmark my profile so you can request me when you do have another question. Here is a link to my profile: http://www.justanswer.com/law/expert-lawtalk/

Thank you very much and take care.

Doug

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