3 Social Security Questions

May 23, 2020 8:58 AM , Updated June 6, 2020 8:18 AM
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Do you know what age you can begin drawing Social Security? Can you still work while collecting Social Security? What kind of tax bill ramifications does receiving Social Security benefits cause?

If you don’t know the answers to these 3 Social Security questions, you probably are not yet ready for federal retirement. Retirement Benefits Institute’s retirement readiness quiz should help you gauge your level of readiness. When it comes to Social Security, retirement readiness means being able to say, “I understand the factors that must be considered in order to maximize my Social Security benefit.”

Social Security is one of the three pillars upon which a FERS retirement is built — along with a FERS pension and the Thrift Savings Plan (TSP). If you’re not familiar with Social Security, there’s no need to fret; below are key points for 3 Social Security questions.

When can I draw Social Security?

The earliest age to draw Social Security is age sixty-two. Unless you are a widow or widower, then you can draw at age sixty; although you don’t have to draw the benefit until age seventy. Even though you can draw at age sixty-two, there are a few considerations to keep in mind.

Every year you wait to draw Social Security, your benefit increases by 8%. Technically, your benefit at age sixty-two is not your full Social Security benefit. Not until your full retirement age (FRA) would you be eligible for 100% of your benefit. See SSA.gov’s FRA chart to determine your full retirement age. Waiting to draw a benefit until after full retirement age continues to add 8% per year. This added benefit after FRA is known as delayed retirement credit. 

Can I draw Social Security and work?

The answer to this question is yes…and no. Again, it comes down to your full retirement age.

Those who draw Social Security and work and have not yet reached FRA are subject to the Social Security Earnings limit. (See details on the 2020 Social Security Earnings limit) The earnings limit simply means if you make over a certain amount of income, your Social Security benefit will be reduced, possibly eliminated entirely.

Those who reach FRA can work and draw Social Security without being subject to the earnings limit. Understanding this concept should help you greatly as you plan for retirement.

Will my Social Security be taxed?

Maybe.

If you have received a Social Security estimate from SSA or perhaps run your own numbers, don’t forget about federal taxes. Your benefit may not be taxed; however, if you bring in a certain amount annually, 85% of your Social Security benefit could be taxed.

The following comes straight from ssa.gov and lists the provisional income (combined income) limits.

  • 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;
    • more than $34,000, up to 85 percent of your benefits may be taxable.
  • 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;
    • more than $44,000, up to 85 percent of your benefits may be taxable.
  • If you’re married and file a separate tax return, you probably will pay taxes on your benefits.

The key term here is combined income. Combined income is equal to your Adjusted Gross Income (AGI) + Tax Exempt Income + ½ Social Security Benefit.

What does this mean for federal retirees? Since AGI includes income from a federal annuity, traditional TSP withdrawals, and spousal income, you may be paying tax on your Social Security after all.

Keep in mind that the above discussion is on federal taxes. Social Security may or may not be taxed at the state level depending on the laws of the state where you reside.

© 2020 Brandon Christy. All rights reserved. This article may not be reproduced without express written consent from Brandon Christy.

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About the Author

Brandon Christy, CPA, PFS, is the founder and president of Retirement Benefits Institute, Inc. He is an established leader in contracted federal retirement benefits education, and his company has trained over 10,000 federal employees to help them gain clarity and confidence in retirement.

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