Does Money in The Bank Affect Social Security?
February 24, 2021Retirement Wealth
How does your savings or other money you receive in your account affect your social security benefits as a retiree in the USA?
The income earned after retirement and other savings from an Independent Retirement Account can affect social security benefits for seniors. Also, the distribution of a savings can have an indelible impact on social security with taxation policies.
Many seniors do not understand how social security benefits work. With this, upon retirement, they tend to make poor decisions that will affect their entitlements. As a senior, you should not only know how the figures in your bank are related to your social security, you should also know how to estimate your social security benefit based on your financial statement.
As long as you satisfy the necessary requirements you can receive social security benefits upon retirement no matter how little you earned in your active years, or how much you have in your savings accounts.
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How Is Social Security Benefit Calculated?
Social Security Administration is the body in charge of estimating Social Security. The body will keep every of your income records on an annual basis. The percentage of the income meant for social security tax will be used to estimate your entitlements upon retirement.
Hence, the size of your social security benefit will be determined by not only how much you earned, but by how much of that went into social security taxation.
However, there is a maximum limit for this tax per month regardless of your salary. The limit for 2021 is $3,895.
If you are a senior that paid for this taxation for more than 35 years, only 35 years of the active years in which you earned the most income will be used for this estimation.
Upon retirement, when you apply for your social security benefits, the administration will make an adjustment based on inflation, and then use this to estimate what is known as the Primary Insurance Amount.
Primary insurance amount indicates the particular entitlement you qualify for as social security benefit when you reach the retirement age.
What is the Retirement Age for Social Security?
Retirement age varies. If you are a senior born between the years 1943 to 1954, then your retirement age will be 66.
For seniors born in the years 1954 to 1960, the retirement age will increase by two months until it reaches 67.
Note that age is another important factor for social security benefits. If you like, you can start collecting your social security benefits when you clock 62 years old. But at this age, you will only get a reduced benefit.
However, if you wait till you reach your retirement age, you will get your full benefits. Also, for every year after retirement age that you stall your social security benefit, you will get an increase of 8% on a monthly basis.
If you keep postponing your social security benefit after retirement age, it will max out when you reach 70 years old, and the increment stops.
Can Bank Savings Affect Social Security Benefits?
Even though the estimation for your social security does not have to do with the savings in your bank account, the savings can still affect the taxation of your social security.
What this means is that the IRS does not levy taxes on your social security benefits except if you surpass your income threshold which can only occur with extra sources of income or savings that appear in federal taxation filing.
The income that is in your taxation file must be equal to your modified income and the addition of your excess money or interest from investments that are not taxable.
The combination of your income is the addition of your modified income with half of the yearly social security benefit you earn from retirement.
If the combination of your income is more than 85% of the social security entitlement you earn, then you will pay a taxation percentage as if your social security benefit is just an ordinary income.
Does Your Partner’s Work Record Affect Social Security Benefits?
If you have not yet qualified to benefit from social security entitlements, you can still earn the benefits with either your present spouse or ex-spouse’s record.
Seniors that qualify for this benefit will receive half of their spouse's social security benefit on a monthly basis.
The minimum age to receive spousal social security benefits is 62 years old, as long as your spouse qualifies for withdrawing this benefit.
Should a senior start receiving spousal social security benefits before attaining full retirement age, there will be a further reduction in benefits.
Also, money in the bank and individual retirement account can also complicate spousal social security benefits and taxation, just as it is with your own entitlements.
Can Social Security Benefits Affect IRAs?
For seniors that have conventional retirement accounts, are more than 70 years old, and make transactions with these personal accounts, there is the possibility of affecting social security benefit taxation with withdrawals.
The reason for this is that the money distribution will increase modified, adjusted, and even combined gross incomes.
Accounts like Roth IRAs are tax-free and will not affect your social security benefits.
How You Can Affect Your Social Security Benefits?
You may be wondering how you can influence your social security entitlement after retirement. Here are some causes:
Working After Retirement
Some seniors find reasons to keep working after retirement. In fact, there are many jobs perfect for this purpose.
If you are one of these seniors who want to keep earning by working after retirement, or for whatever reason it might be, then you should have it at the back of your mind that extra earning complicates social security benefits.
How Will SSA Estimate Post Retirement Earning.
Working after retirement will lead to pending and reduced social security benefits. For every $2 you make, your benefit will have a reduction of $1 for $18,240 you make in 2020 and $18,960 in 2021.
When you fully attain retirement age, the reduction will be $1 for every $3 in every figure you earn which is more than $48,600 in 2020 and $50,520 in 2021.
It is important to note that your money is not gone forever. As a matter of fact, upon reaching full retirement age, there will be an increment in your social security benefit to account for every single dollar.
How Will SSA Know That You Are Earning After Retirement?
Now, you may be wondering how the SSA will get to know that you are working after retirement and if they have access to accounts and earnings?
But the truth is that SSA does not track your earnings, neither do they have access to your bank accounts. Hence they can only find out about your earnings from you, and it is your duty to duly report it to them.
It is important that you let the SSA know if you have other sources of income. If you do not, they will notice when they receive your tax report, and this can lead to consequences such as paying a fine, forcefully returning the extra income, or reduction in social security benefits.
Does Social Security Benefit Affect Those Working After Retirement but No Longer in the USA?
For senior retirees that work away from the USA, the social security benefits are slightly different.
If you are yet to attain the age for retirement, SSA will give you a monthly reduced benefit if you work for 45 hours or more on a job, regardless of if you are self-employed, as long as you are not paying for social security taxes in the USA.
Note that this does not have to do with the income you earn. For more information, you can reach the SSA on how to go about this.
About THE AUTHOR
With multiple family members currently in senior living facilities, David is in the trenches every week, learning the ins and outs of nursing homes, assisted living, memory care, and general senior living.Read more about David Bolton
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