The U.S. government provides money to retired, unemployed and disabled persons through the Social Security Administration. People who pay into the system through payroll taxes for at least 10 years receive a financial safety net upon retirement. The amount you receive from Social Security is supposed to replace some, but not all, of your pre-retirement income and several factors affect exactly how much you will receive. Find out about those factors below so you can plan ahead and work to maximize your benefits.
1. Retirement Age
The age you decide to start receiving Social Security payments affects your benefits. The earliest you can start cashing in is at age 62, even if you retire before then. Depending on when you were born, full retirement age is between 65 and 67 and you can delay taking Social Security benefits until as late as age 70. The longer you wait, the higher the monthly benefit you will get, until age 70.
2. Work History
When you earn a paycheck, a portion of your pay goes toward Social Security taxes. Your retirement benefits are based on the highest 35 years of earnings during your career. If you work longer (like past traditional retirement age) and earn a higher income, you will see increased benefits.
3. Working While Taking Benefits
It is possible to stay in the workforce during retirement and still receive benefits. However, your benefits may be reduced by a portion of your earnings. If you are under full retirement age, benefits will be reduced $1 for every $2 you earn above a certain threshold. The year you reach full retirement age, up until the month of your birthday, benefits are reduced $1 for every $3 you earn above a higher threshold. After your birthday month, there is no reduction in benefits regardless of your earnings.
With an estimate of your future benefits under your belt and knowledge of the factors that impact them, you should be well-equipped to enhance your potential benefits and plan for your personal retirement needs.
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