Social Security
Many people rely on Social Security benefits as a significant portion of their retirement income. For many years, the Social Security Administration (SSA) mailed out statements each year summarizing workers’ history of earnings and protective benefits. The SSA has transitioned this information from paper to internet based.
By accessing this information, you are able to verify the accuracy of your earnings history. Secondly, it is very important to accurately project your benefit amount to rely on during your retirement. Also important, is for you to completely educate yourself with the pros and cons of applying for your Social Security benefits starting at an early age.
Benefits may be paid beginning at age 62 or postponing application until age 70. Receiving benefits at age 62 may not always be the best choice. Those people who may want to consider waiting beyond age 62 to begin receiving their Social Security income are those who:
1) still working
2) have qualified plan assets, such as IRAs, Roth IRAs, 401(k)s, etc.
3) are married with significant age differences between spouses
4) are married with significant differences in lifetime earnings between spouses
The SSA.gov gives you the ability to create your own account and access your personal information. SSA.gov also offers a lot of amount of information relevant to your retirement needs.
Timing
While the earliest you can start taking benefits is age 62, most people don’t reach their “full-retirement age” as defined by the Social Security Administration until age 65. Just like an employer’s pension, the earlier you start collecting benefits, the less you receive per year, which is locked-in when your benefits begin.
It’s important to review the options available to you for optimizing your retirement income.HIA Financial Services offers a complimentary report using our software and your earnings history to optimize your social security benefits. By analyzing your current and future financial position, we work with you to develop a strategy that not only will maximize your social security benefits, but also optimizes your financial plan.
Our interactive software tool allows you to input data and view options for filing for social security and print a report for you to take home for your reference.
Get The Most When You Retire
Younger retirees face a harsh penalty for working part-time. For every $2 earned over $14,640 in 2012, you lose $1 in Social Security benefits. In the year you reach full retirement age, a higher earnings threshold applies. Your benefits will be reduced by $1 for every $3 of earnings only when earnings exceed $38,880 if you reach full retirement age in 2012.After you reach full retirement age, you can earn unlimited amounts and still qualify for full Social Security benefits. (See the chart to determine what “full retirement age” means for you.) However, that’s only earned income. You can have unlimited unearned income from sources like retirement plans, pensions, annuities, interest, dividends, and capital gains without losing any Social Security benefits. This “Social Security Earnings Test” only applies to people below the normal retirement age.
With some advance planning, you might be able to reduce earned income and make up the shortfall with unearned income with a deferred compensation plan. That is, you receive money that you earn one year in a later year, perhaps in retirement.
For income tax purposes, taxes are due when money is received. For Social Security purposes, though, deferred compensation is counted when it’s earned — not when it’s received. So any money you receive from a deferred compensation plan while you’re between age 62 and your full retirement age doesn’t count against Social Security retirement benefits. In other words, you can defer compensation from ages 55 to 61 and receive that money while you’re between 62 and full retirement age.
To do this, the details of your deferred compensation plan should be recorded in the corporate minutes for your company if you’re an owner or part owner. You should also include the appropriate reasons. For example, “the company needs cash now, for expansion purposes, so current compensation is being deferred.” Then, when you decide to semi-retire, you can work just enough to earn the allowable amount for that year. (The 2012 allowed amount of $14,640 will generally increase annually.) This way, you receive full benefits from Social Security.
In addition to Social Security and deferred compensation, your income can be supplemented by retirement plan payouts and perhaps the sale of company stock shares to your company. You may also have an expense account that can be used as a part-time employee to help offset expenses.
All of these methods help preserve your Social Security benefits and retirement dollars. Your tax adviser can provide more information
